-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EKTFVsGVkQI8g7RFYOR5D8V4VX+AKqmRYnZiILd1uub6WY0Q3jQSc9Z9xVeKpbe1 jnh9EmUvciuRnuv3vhDS8A== 0001005477-96-000135.txt : 19960525 0001005477-96-000135.hdr.sgml : 19960525 ACCESSION NUMBER: 0001005477-96-000135 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960302 FILED AS OF DATE: 19960524 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOPPS CO INC CENTRAL INDEX KEY: 0000812076 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 112849283 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15817 FILM NUMBER: 96572133 BUSINESS ADDRESS: STREET 1: ONE WHITEHALL STREET CITY: NEW YORK STATE: NY ZIP: 10004-2109 BUSINESS PHONE: 2123760300 MAIL ADDRESS: STREET 1: ONE WHITEHALL ST STREET 2: ONE WHITEHALL ST CITY: NEW YORK STATE: NY ZIP: 10004 10-K405 1 FORM 10-K405 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 2, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______ to _______ Commission file number 0-15817 THE TOPPS COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 11-2849283 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Whitehall Street, New York, NY 10004 (Address of principal executive offices) (Zip Code) (212) 376-0300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock par value $.01 (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of Common Stock held by non-affiliates as of May 17, 1996 was approximately $276,000,000. The number of outstanding shares of Common Stock as of May 17, 1996 was 47,047,510. Documents incorporated by reference Part ----------------------------------- ---- Annual Report to Stockholders for the Year Ended March 2, 1996 I,II,IV Proxy Statement for the 1996 Annual Meeting of Stockholders III - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS General Development The Topps Company, Inc. was incorporated in Delaware on February 24, 1987. The Company is the successor to Topps Chewing Gum, Incorporated, which was established as a partnership in 1938 and was incorporated under the laws of New York in 1947. All references in this Annual Report on Form 10-K to "Topps" or the "Company" are to The Topps Company, Inc. and its subsidiaries. Topps is a leading marketer of collectible picture products featuring sports figures as well as popular television, movie and/or comic book characters. The Company also produces and distributes BAZOOKA brand bubble gum as well as unique lollipops, such as RING POP and PUSH POP, other novelty candy products, comic books and sticker albums. On July 6, 1995, the Company acquired Merlin Publishing International Limited ("Merlin"), a U.K.-based publisher and marketer of licensed collectibles, primarily sticker and album collections and, to a lesser extent, trading cards and temporary tattoos. Merlin has subsidiaries in France, Spain, Italy and the Netherlands (which also serves Germany, Belgium and other countries). The Company has expanded its international operations over the last several years, including establishing new subsidiaries in Canada and Mexico in fiscal 1996 and Brazil in fiscal 1997. The Company currently distributes in over thirty-five countries and has employees in nine and manufacturing licensees in seven international markets. According to industry statistics, the sports card category continued to contract in calendar 1995. The Company believes that the number of collectors declined and that those who remained spent less. There are several reasons for this: product and brand proliferation which led to consumer confusion and oversupply, labor strife which left fans feeling disenfranchised, a competitive rise in other sports-related merchandise choices and a reduction in retailer support. Although further declines may occur over the near term, the Company believes that these negative industry trends will moderate over the longer term. - ---------- Trademarks of The Topps Company, Inc. and Subsidiaries appearing in this report: BAZOOKA, BAZOOKA BURSTS, BAZOOKA JOE, BAZOOKA SOFT, BOWMAN, GARBAGE PAIL KIDS, JUICE BAR, MARS ATTACKS, MERLIN, PUSH POP, RING POP, ROLLER POP, TONGUE SUCKER, TOPPS, TOPPS ARCHIVES, TOPPS BABY WILD ANIMALS, TOPPS FINEST, TOPPS GALLERY, TOPPS STADIUM CLUB, TRIPLE BLASTS and WACKY PACKAGES. 2 Products Sports Picture Products. The Company is a leading marketer of collectible picture products featuring major league baseball players and professional basketball, football and hockey players. Such products feature photographs of the athletes and include summary statistics and biographical material. Over the years, sports picture cards have been marketed in packages with and without bubble gum. The Company also markets sports picture cards in various size packages, as well as complete sets, for distribution through a variety of trade channels. The Company issues several new series of baseball, basketball, football and hockey picture products each year. Each season, products contain new players, copyrighted designs and photographs and updated statistics. The Company distributes several brands of sports cards under the names TOPPS, TOPPS STADIUM CLUB, TOPPS ARCHIVES, TOPPS FINEST, BOWMAN, and BAZOOKA. Each brand of sports cards has its own unique positioning in the marketplace and is designed to appeal to certain groups of consumers. All brands of sports cards are of a high-quality and feature laminated paperboard and state-of-the-art reproduction techniques. Certain brands feature borderless cards and also contain foil stamping. Prices range from a suggested retail price of $0.50 per pack for popular-priced BAZOOKA baseball cards to a suggested retail price of $5.00 per pack for the TOPPS FINEST brand. In 1996, the Company plans to introduce TOPPS GALLERY, a brand designed exclusively for the hobby trade featuring sports hero photographs of premium quality and state-of-the-art printing. Cards containing new technologies including laser-cutting and gold-gilt edges, will also be rolled out over the next year. In December 1995, the Company signed a joint venture agreement with a technology company, Data Systems & Software, Inc., to manufacture and distribute sports-oriented CD-ROMs. The joint venture intends to begin marketing its first product line in the fall of 1996 and will utilize the Topps trademark pursuant to a license agreement between the parties. Entertainment and Other Picture Products. The Company's activities in this area began in the 1950's. Since then, the Company has marketed many of the dominant entertainment card properties of the time, including Hopalong Cassidy, Davey Crockett, The Beatles, Star Wars, Michael Jackson, E.T., Indiana Jones, Batman, Teenage Mutant Ninja Turtles, Jurassic Park and The X-Files. Occasionally, the Company has also created products detailing events of national interest or parodying popular brands and properties such as Desert Storm, WACKY PACKAGES and GARBAGE PAIL KIDS. From time to time these "parody products" have involved the Company in litigation, although such litigation has not had a material adverse effect on the consolidated financial position of the Company. In 1996 the Company expects to introduce a number of entertainment card products, featuring new merchandisable properties along with some of the most 3 prominent brands in the entertainment field. This spring, the Company will market its first series of Goosebumps trading cards, based on the best-selling line of books from R.L. Stine. To date, over 65 million Goosebumps books have been sold and it is also the subject of a popular T.V. series. For the summer movie season, the Company will produce cards based on two major film releases, Independence Day and Dragonheart. During the year, the Company will also continue to market its popular line of Star Wars and X-Files trading cards, which continue to demonstrate great vitality and represent two of the strongest entertainment franchises in the card collecting community. In addition, the Company plans to market cards and comics based on one of its self-created properties, MARS ATTACKS. Last year Warner Bros. optioned the movie rights to MARS ATTACKS, which is currently in production and scheduled to be released in December 1996. The film will be directed by Tim Burton and will feature a star-studded cast including Jack Nicholson, Pierce Brosnan and Annette Bening. The success and life cycle of each of Topps' entertainment and other picture products depends on consumer interest in its underlying subject matter and the Company's ability to achieve and maintain distribution in the marketplace. Magazine and Book Publishing. The Company is currently publishing two quarterly magazines. Star Wars Galaxy magazine features, among other things, interviews with popular Star Wars artists, excerpts of new works of Star Wars fiction, new Star Wars product offerings and general information regarding the continuing Star Wars saga. A special twentieth anniversary commemorative magazine is scheduled to be published in February 1997. The Company's quarterly X-Files magazine caters to the devoted followers of the television series, focusing on interviews with the creators of the property, cast members and other individuals associated with this popular show. From time to time, the Company also publishes and distributes single issues of fan souvenir and poster magazines based on subjects of current interest in the entertainment field. Comic Books. Through its subsidiary, Topps Comics, Inc., the Company creates and markets high-quality color comic books for distribution in specialty shops and newsstands. During 1995, more than 40 different comic books featuring titles such as X-Files, Jurassic Park and MARS ATTACKS were published. In 1996, the Company will publish fewer titles, focusing greater attention on its stronger properties and removing non-performing lines from the publishing program. 4 Stickers and Albums. The Company designs and markets sticker and album collections in Europe through its subsidiary, Merlin, acquired in July 1995. Merlin's product line includes a combination of sports and entertainment properties. These sticker collections are the popular medium for licensed collectibles in Europe and many other parts of the world. All the stickers display photos, images or characters from licensed properties. The stickers are placed in designated places in the associated album, which usually contains more detailed information about the property or characters. Currently, U.K. Premier League soccer is Merlin's most prominent sticker and album collection. The Premier League contract runs through 1997. Merlin's other collections are entertainment-related. In 1995, Merlin marketed over 35 different properties throughout Europe, some in multiple languages, formats and series. Examples of licenses for entertainment properties held in 1995 include Power Rangers, Batman Forever and Baywatch. BAZOOKA Brand Bubble Gum. The Company has been marketing BAZOOKA brand bubble gum since 1947. Traditional chunk BAZOOKA bubble gum is produced in individually-wrapped rectangular pieces in nine flavors and is sold in five-cent and ten-cent sizes. In the United States and many foreign countries, each piece of BAZOOKA brand bubble gum includes a comic printed in the appropriate language and usually featuring BAZOOKA JOE, a copyrighted cartoon character created by the Company in 1953. The Company also sells sugarless BAZOOKA SOFT, which differs from the traditional chunk BAZOOKA bubble gum primarily in its texture, flavor release and non-stick formula, and BAZOOKA BURSTS, introduced during 1994 --a bubble gum product manufactured with flavor crystals designed to enhance flavor impact and extend its duration. Multiple piece packs of BAZOOKA include a six-piece pack of soft sugarless bubble gum, a ten-piece pack, and forty-five and seventy-five count bags of traditional chunk BAZOOKA. These packages were designed for distribution in supermarkets, convenience stores, drug store chains and other mass merchandisers. Lollipops. The Company markets several lollipop products throughout the United States and many foreign countries. Products include RING POP (a lollipop made of candy molded into the form of an exaggerated precious gem stone, anchored to a plastic ring) and PUSH POP (a cylinder-shaped lollipop packaged in a plastic container with a removable cap, designed to enable consumers to eat a portion of the pop and save the rest). Recent introductions of new lollipop products include ROLLER POP (a pop in the shape of a paint roller overwrapped in a plastic tray with a packet of fruit-flavored, mouth-coloring powder into which the pop is rolled), TRIPLE BLASTS (a ball-shaped pop on a stick that changes color and flavor three times, and has a bubble gum center) and TONGUE SUCKER (a tongue-shaped pop on a stick with plastic lips). 5 Other Novelty Candy Products. The Company markets a line of candy and candy-coated bubble gums which consists of a variety of specialty products in unusual motifs and packages. Examples of these products include JUICE BAR, a flavored candy-coated bubble gum packaged in miniature juice cartons. From time-to-time, the Company introduces candy and/or gum-filled container products replicating licensed characters and themes. For example, during the past few years, the Company marketed gum-filled plastic containers shaped like characters from the movie and cartoon series Batman Forever, Jurassic Park, The Flintstones, Casper and Power Rangers. These container products provide entertainment value and are designed for impulse purchase. Other Collectibles. In 1995, the Company obtained the rights to produce a range of small plastic collectible puppies under the name Puppy In My Pocket. The series consists of 24 different puppies each packaged and sold separately. Included with the puppy is a candy bone and a card describing the breed. In 1996, the Company intends to introduce TOPPS BABY WILD ANIMALS, a range of small collectible jungle and wildlife animals. These products leverage the Company's strengths in distributing collectible products. For a schedule of net sales by major product group for the past three fiscal years, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 7 of the Company's Annual Report to Stockholders for the year ended March 2, 1996 (the "Annual Report"), which is hereby incorporated by reference. Distribution and Marketing The Company's products are sold throughout the United States and in many foreign countries. U.S. sales are made by the Company's own sales force and several independent brokerage firms to more than 2,000 wholesale tobacco and confectionery jobbers, hobby distributors, wholesale clubs, newsdealers, mass merchandisers and direct-buying chains of convenience, drug, variety, discount and toy stores. Sales to more than 450 grocery wholesalers and direct buying chains of supermarkets are made through independent brokerage firms. Sales to more than 5,000 collectible products dealers and hobby shops are made by direct mail solicitation. While the Company's sales in Europe historically have been handled by the Topps Ireland Ltd. ("TIL") subsidiary, the acquisition of Merlin provided an opportunity to expand distribution of confectionery products and to combine the sales and distribution efforts of Merlin and TIL. As a result, sales of both confectionery products and collectibles in the U.K. are now handled by a dedicated sales force which calls on major chains as well as wholesalers selling to independents. Together, the salesforce and wholesalers reach approximately 50,000 retail news and confectionery outlets in the U.K. Elsewhere in Europe, sales are primarily through candy and snack food distributors as well as through newstrade agents or distributors. In some markets, such as Germany and the Netherlands, national distributors are used. In others, such as Italy and France, 6 a more regional approach is taken. In all cases, the distributors and agents are managed closely by a Topps manager from the appropriate local subsidiary. The Company develops products for exclusive distribution in the U.S. hobby channel of trade. Recent examples include TOPPS ARCHIVES, a brand of sports cards which capitalizes on the Company's heritage of marketing baseball cards since 1951 and TOPPS GALLERY which features unique, top-quality sports star photographs. The Company utilizes category management programs aimed at improving the retail merchandising of its cards and confectionery products. The programs provide the retailer with information designed to increase shelf space as a result of the relatively high levels of sales and profitability of these products. The programs also provide guidance to the retailer as to the optimal placement and promotion of products. Traditionally, the Company has relied on the popularity of its sports and other licensed products and the consumer recognition of its brand names in order to promote its products. In addition, as described above, the Company has often become a licensee for characters and personalities with well-publicized and well-advertised names. Similarly, picture products based on movies have relied on the extensive national promotional campaigns for these films. The Company also uses print advertising on its own product wrappers and promotional insert cards to increase consumer awareness of its products and promotions. The Company also utilizes a variety of promotional activities, including television, radio and print advertising campaigns, designed to create consumer awareness and increase retail sales of its products, particularly TOPPS and TOPPS STADIUM CLUB brand sports cards and RING POP and PUSH POP lollipops. Advertising and promotional expenditures as a percentage of net sales for the fiscal years ended in 1994, 1995 and 1996 were 4.8%, 6.8% and 7.8%, respectively. Approximately two-thirds of the Company's sales are made on a returnable basis. Industry practices require that the Company provide the right to return on sales of sports card products excluding those to hobby dealers, on comic book products sold to mass merchandisers and on most of Merlin's sales of stickers and albums. Returns considerably in excess of the Company's returns provisions could have a material adverse effect on the Company. Return provisions as a percentage of gross sales for the fiscal years ended 1994, 1995 and 1996 were 11.1%, 10.9% and 16.5%, respectively. Direct Response. The Company has a direct response membership club through which it markets exclusive, special sets of TOPPS STADIUM CLUB baseball, football, basketball and hockey cards. The Company also markets additional card sets and other products directly to such membership as well as to other consumers. 7 Production Photographs of athletes are normally taken by photographers under contract with the Company or by free-lance photographers on special assignment. In addition, certain photography is provided by the organization representing the leagues and their member teams. Pictures of entertainment subjects are normally furnished by the licensor or created by artists retained by the Company. Computerized graphic artwork and design development for all the Company's products is done by staff artists and through independent design agencies under the Company's direction. The Company's Graphic Services Department also utilizes state-of-the-art computerized technology to enhance and color-correct photography, and computer imaging to create interesting and unusual backgrounds and visual effects. High-quality paperboard is sent directly to outside printers by the Company's suppliers. Pictures are printed utilizing a variety of techniques and state-of-the-art presses, including waterless printing, which allows for a tighter line screen resulting in sharper and more intense photo reproduction. Large sheets of printed cards are then often sent to additional suppliers who foil stamp and UV (ultra violet) coat the sheets before they are delivered to the Company's factories in Duryea, Pennsylvania and the Republic of Ireland, where they are then cut into individual pictures, collated and wrapped, sometimes with the insertion of gum into each package. Gum base constituents, sweeteners, flavors and other ingredients are manufactured into bubble gum at the Company's factories in Duryea, Pennsylvania and the Republic of Ireland. RING POP is manufactured from sweeteners, flavors and other ingredients at the Company's Scranton, Pennsylvania factory. PUSH POP, some RING POP and certain other candy products are manufactured to the Company's specifications abroad, by outside suppliers, and delivered to the Company as finished product. Merlin's sticker products are sourced from a single supplier in Italy, with which the Company has a five-year agreement containing certain exclusivity provisions. Based on Merlin's historical and anticipated growth, the supplier is expanding its capacity. If this relationship were to end, the Company believes that there would be other suitable sources available to meet its requirements. Sweeteners, flavors, gum ingredients, paperboard, packaging materials, foil stamping and UV coating are required to manufacture the Company's products and are generally available. The Company does not rely on a single producer for any of these ingredients or processes except for a few gum base constituents and paperboard. Alternate suppliers are available to substitute for these single sources, although some adjustment in product specification would be required. PUSH POP is manufactured by a single supplier in factories located in Taiwan, Thailand and the Republic of China. The loss of one or more of these sources of supply due to civil unrest or any other reason could have a significant impact on sales of PUSH POP until an alternate source could be arranged. 8 Trademarks and License Agreements The Company considers its trademarks and license agreements to be of material importance to its business. The Company's principal trademarks have been registered in the United States and many foreign countries where its products are sold. The sports picture products marketed by the Company are all based on rights under license agreements with individual athletes and/or their players' associations, as well as the licensing bodies of the professional sports leagues. These agreements cover the following sports: Major League Baseball, NBA Basketball, NFL Football, NHL Hockey and Premier League soccer. The Company's inability to successfully renegotiate its Major League Baseball, NBA Basketball, NFL Football or Premier League soccer agreements upon expiration, or the loss of any of these license agreements, could have a material adverse effect on the Company. The Company has an individual license agreement with virtually every major league baseball player. Each baseball player's license agreement is initially for four major league baseball seasons and may be extended for additional seasons as rights are used, if the player and the Company agree. Typically, these agreements are extended annually. Among the rights the Company receives are rights to use a player's name, picture, facsimile signature and biographical description in the form of two or three dimensional pictures, trading cards, postcards, stickers, stamps, transfers, decals, medallions or coins, each within certain size limitations, provided such products are marketed alone or with chewing gum or candy. The licenses granted to the Company by athletes permit the athlete to grant others rights to the use of his name, picture and facsimile signature on other products, including collectible picture cards sold alone or with products other than gum and (with certain exceptions) candy. The Company has a related agreement with the Major League Baseball Players Association, which governs certain terms of the individual player contracts (and which expires in January 1998) and an agreement with Major League Baseball Properties, Inc., which covers the use of the names and insignias of the baseball teams and leagues in connection with its baseball picture products and which expires at the end of the year 2000. The Company conducts a related active licensing program with minor league baseball players and continuously seeks to supplement its relationship with the baseball community by personal visits and corporate identification. The Company considers such relationships to be good and to be of great importance to it. The Company also enters into license agreements with entertainment companies to produce certain products. The terms of such contracts depend on a variety of factors. Total royalty expense under the Company's sports and entertainment licensing contracts for the fiscal years ended in 1994, 1995 and 1996 was $41,898,000, $35,967,000 and $34,614,000, respectively. See Note 15 of Notes to Consolidated Financial Statements in the Annual Report, which is incorporated herein by reference, for a description of minimum guarantee payments required under the Company's existing sports contracts. 9 International Licensing Operations The Company, which licenses its technology and trademarks, currently has license agreements with manufacturers in seven foreign countries to manufacture and distribute the Company's products. These licensees have the right to sell licensed products in countries of their location and, in certain instances, other countries as well. The Company receives royalties from its licensees based on sales of licensed products and certain non-Company brands. Prior to fiscal 1996, the licensee in Canada accounted for the largest percentage of the Company's royalty income. That license was amended, however, to remove the licensee's rights with respect to collectible picture products. As a result, beginning in March 1995 the Company marketed and distributed these products directly in Canada through Topps Canada Inc., its then newly-formed wholly owned subsidiary. The balance of the Canadian license expires in 1998. In addition, in April 1996, the Company's licensing agreement with Productos Stani for the sale of BAZOOKA in Argentina expired, and Productos Stani became the owner of the BAZOOKA trademark in Argentina. Royalties are generally based on sales volume in local currency and are payable in United States dollars. The Company's royalties from international operations are subject to foreign currency fluctuations and, in some cases, exchange control regulations which restrict the conversion of funds to United States dollars and the transfer of dollars to the United States, as well as other restrictions. Although the Company has from time-to-time experienced delays in the receipt of payment for royalties from various licensees because of foreign exchange control regulations, to date, such regulations have not materially affected the Company's results of operations. Competition The Company competes for sales as well as counter and shelf space with large corporations in the food, candy, publishing, toy and other industries. Many of these corporations have substantially greater resources than the Company. More narrowly, the Company competes with other companies, large and small, which market gum and candy, and with a number of collectible picture product companies for the spending money of children and adult collectors. The Company believes that the industries in which it operates are highly competitive. Seasonality The Company's domestic sports picture products are sold throughout the year, spanning the four major sports' seasons in which the Company participates, i.e., baseball, football, basketball and hockey. Sales of entertainment card products tend to be driven by the property on which they are based, often peaking with the release of a movie or rise in popularity of a television program. Sales of confectionery products are relatively stable throughout the year, although they are impacted by the introduction of new products and the use of consumer advertising which can occur at any point in the 10 year. Merlin's sales are driven largely by the shipment of products relating to Premier League soccer, with much of the sales activity occurring in January and February. Environment The Company believes that it is in compliance in all material respects with existing federal, state and local regulations relating to the protection of the environment. Such environmental regulations have not had a material impact on the Company's capital expenditures, earnings or competitive position. Employees During fiscal 1996, the number of Company employees varied from approximately 800 to 1030 people, of whom about 400 to 625 were engaged in production, depending on production requirements. All of the production employees at the Company's Pennsylvania factories are represented by one union under a collective bargaining agreement. The current contract expires in June 1996, but can be extended through December 1996 at the Company's option. All of the production employees at the Company's factory in the Republic of Ireland are represented by unions. The Company considers its employee relations to be good. Cautionary Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby filing cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements of the Company made by or on behalf of the Company, whether oral or written. The Company wishes to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to maximize to the fullest extent possible the protections of the safe harbor established in the Reform Act. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors, among others, that could cause the Company's actual results to differ materially from those projected in forward-looking statements of the Company. 1. Dependence on Licenses The Company's trading card and sticker and album businesses are highly dependent upon licensing arrangements with third parties. These licenses, which have varying expiration dates, are obtained from entertainment companies, the various professional sports leagues, players associations and, in certain instances, the players themselves. The Company's inability to renew or retain 11 these licenses, or the lack of vitality of these licenses, could materially affect its future plans and results. 2. Contraction in Sports Card Industry and Competition The Company believes that the sports card industry continued to contract during calendar 1995. That contraction, caused in part by product and brand proliferation and labor strife, has resulted in an increasingly competitive environment in the sports card industry. Further prolonged and material contraction in the sports card industry could materially affect the Company's future plans and results. 3. Returns Approximately two-thirds of the Company's sales are made on a returnable basis. Although the Company maintains provisions for returns, returns considerably in excess of the Company's provision could materially affect its future plans and results. 4. Leverage On June 30, 1995 the Company entered into a $65 million credit facility (the "Credit Agreement") with a syndicate of banks. The Credit Agreement consists of a $50 million term loan used to finance the acquisition of Merlin, a $2 million letter of credit facility and a $13 million revolving credit facility to be used for working capital and general corporate purposes. The Credit Agreement contains restrictions and prohibitions of a nature generally found in loan agreements of this type (including restrictions on the ability to pay dividends) and requires the Company, among other things, to comply with certain financial covenants. Although the Company was in compliance with such financial covenants at March 2, 1996, there can be no assurance that the Company will continue to be in compliance with such covenants, or as to the impact of any such failure on the Company. Financial Information About Industry Segments, Foreign and Domestic Operations and Export Sales The Company operates in one business segment which is the manufacture and sale of collectible picture and confectionery products, including the licensing of its technology and trademarks. Geographic area information contained in Note 12 of the Notes to Consolidated Financial Statements included in the Annual Report is hereby incorporated by reference. 12 Executive Officers of the Company The information required by this item with respect to the directors of the Company and as to those executive officers who are also directors appearing in the Proxy Statement for the annual meeting of stockholders scheduled to be held on June 26, 1996 ("1996 Proxy Statement") is hereby incorporated by reference thereto. Set forth below is information required by this item covering the other executive officers of the Company. Name Position with the Company and business ---- experience during the past five years ------------------------------------- Ronald L. Boyum Vice President-Marketing and Sales of the Company since March 1995, Vice President- Sales and Sports Marketing of the Company since April 1994 and Vice President-Sales since April 1990. Mr. Boyum is 44 years of age. Michael P. Clancy Vice President of the Company since February 1995. Mr. Clancy has been Managing Director of Topps Ireland since July 1990 and General Manager-Manufacturing Operations prior thereto. Mr. Clancy is 41 years of age. Michael J. Drewniak Vice President-Manufacturing of the Company since March 1991. Mr. Drewniak held the position of General Manager-Manufacturing Operations prior thereto. Mr. Drewniak is 59 years of age. Ira Friedman Vice President-Publishing and New Product Development of the Company since September 1991. Mr. Friedman joined the Company in October 1988 as Director of New Product Development. Mr. Friedman is 42 years of age. 13 Name Position with the Company and business ---- experience during the past five years ------------------------------------- Jeffrey M. Goodman Vice President - Sales of the Company since October 1995. Prior to joining the Company, Mr. Goodman was Vice President, Sales and Marketing of Lincoln Snacks Company, Inc. (a snack food company) from October 1992 to October 1995. Mr. Goodman held various positions with Nestle Food Company (a food products company) from 1986 to 1992. Mr. Goodman is 37 years of age. Catherine K. Jessup Vice President - Chief Financial Officer of the Company since July 1995. Prior to joining the Company, Ms. Jessup held a number of positions with PepsiCo (a food products company) from 1981 to July 1985 including Director of Planning and C.F.O. PepsiCo Wines and Spirits. Ms. Jessup is 40 years of age. Steven Kosoff Vice President-Marketing--New Products of the Company since April 1994. Mr. Kosoff held the position of Vice President-Marketing --Sports from September 1991. Mr. Kosoff held the position of Director of Marketing prior thereto. Mr. Kosoff is 47 years of age. William G. O'Connor Vice President - Administration of the Company since September 1991. Mr. O'Connor was an Assistant Secretary of the Company from June 1982 until June 1994. Mr. O'Connor is 47 years of age. John Perillo Vice President-Operations of the Company since April 1995 and Vice President-Controller and Chief Financial Officer of the Company from April 1990 to July 1995. Mr. Perillo is 39 years of age. Thomas R. Pisano Vice President-International of the Company since February 1995. Prior to joining the Company, Mr. Pisano was Vice President-Global New Business Development of Avon Products, Inc. (a beauty products company) from December 1992. Mr. Pisano held various positions with Avon Products, Inc. from 1987 to February 1995. Mr. Pisano is 51 years of age. 14 Name Position with the Company and business ---- experience during the past five years ------------------------------------- Scott Silverstein Vice President-General Counsel of the Company since February 1995. Mr. Silverstein held the position of General Counsel from July 1993 until February 1995. Prior to joining the Company, Mr. Silverstein was an attorney with the law firm of Hutton Ingram Yuzek Gainen Carroll & Bertolotti from April 1990 until July 1993. Prior thereto, he was an attorney with the law firm of Shea & Gould. Mr. Silverstein is the son-in-law of Mr. Shorin, the Company's Chairman of the Board. Mr. Silverstein is 34. Peter Warsop Managing Director of Merlin Publishing International Limited since July 1995 and Managing Director of Merlin Publishing Group since the formation of Merlin in 1989. Mr. Warsop is 49 years of age. ITEM 2. PROPERTIES The location and general description of the principal properties owned or leased by the Company are as follows:
Owned or Leased; Area/Facility If Leased, Location Type of Facility Square Footage Expiration Year -------- ---------------- -------------- --------------- Duryea, Pennsylvania manufacturing plant 389,000 Owned and office Scranton, Pennsylvania manufacturing plant 41,000 Owned County Cork, Ireland manufacturing plant 101,000 Owned and office New York, New York executive offices 60,000 Leased; 2010 Milton Keynes, United warehouse/office 10,000 Leased; 2014 Kingdom
15 The Company believes that, in general, its facilities are in good repair and provide suitable production capacity for its needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS Beginning in late January 1993, the Company was named as a defendant in three civil class actions in the United States District Court for the Eastern District of New York entitled Snapp et al. v. The Topps Company, Inc. et al., No. CV 93-0347 (E.D.N.Y.) (filed January 26, 1993), San Filippo v. Topps Co., Inc. et al., No. CV 93-0401 (E.D.N.Y.) (filed January 28, 1993) and Farr v. Topps Co., Inc. et al., No. CV 93-0496 (E.D.N.Y.) (filed February 3, 1993) (collectively, the "Actions"). The Actions allege, among other things, that the Company and certain of its officers and/or directors made materially false and misleading statements, or omitted to state material facts, with respect to the Company's operations, financial condition and future prospects, and assert a variety of claims based, among other things, on Section 10(b) of the Securities Exchange Act of 1934 and common law theories of fraud and negligent misrepresentation. The Company has agreed in principle, with both the plaintiffs and the Company's insurer, to a settlement of the Actions, subject to the final negotiation and execution of a Settlement Agreement and approval of the Court. Under the proposed settlement, the Company would pay an aggregate amount of $485,000, with additional sums to be paid to the plaintiffs by the Company's insurer. Except for the Actions, the Company knows of no material litigation or proceeding pending to which the Company is a party or affecting any of its properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 16 PART II ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Reference is made to the data appearing on page 31 of the Annual Report under the heading "Market and Dividend Information" which is hereby incorporated by reference. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Reference is made to the data appearing on page 32 of the Annual Report under the heading "Selected Consolidated Financial Data" which is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the data appearing on pages 7 through 10 of the Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" which is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the data appearing on pages 11 through 31 and to the Report of Independent Public Accountants appearing on page 31 of the Annual Report which are hereby incorporated by reference. ITEM 9. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information required by this item appears in Part I of this Report on Form 10-K under the heading "Executive Officers of the Company" and in the 1996 Proxy Statement and is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item appears in the 1996 Proxy Statement and is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item appears in the 1996 Proxy Statement and is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item appears in the 1996 Proxy Statement and is hereby incorporated by reference. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1&2) Financial Statements and Financial Statement Schedules See index on page 21. (3) Listing of Exhibits See index on pages 22-24. (b) Reports on Form 8-K None 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 23, 1996 THE TOPPS COMPANY, INC. ------------------------ Registrant /s/ Arthur T. Shorin -------------------- Arthur T. Shorin Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed on the 23rd day of May, 1996 by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Arthur T. Shorin /s/ Catherine K. Jessup - --------------------------------- -------------------------------------- Arthur T. Shorin Catherine K. Jessup Chairman of the Board and Vice President-Chief Financial Officer Chief Executive Officer (Principal Financial and (Principal Executive Officer) Accounting Officer) /s/ Seymour P. Berger /s/ John J. Langdon - --------------------------------- -------------------------------------- Seymour P. Berger John J. Langdon Vice President President Sports and Licensing and Chief Operating Officer and Director Director /s/ Allan A. Feder /s/ David M. Mauer - --------------------------------- -------------------------------------- Allan A. Feder David M. Mauer Director Director /s/ Stephen D. Greenberg /s/ Jack H. Nusbaum - --------------------------------- -------------------------------------- Stephen D. Greenberg Jack H. Nusbaum Director Director /s/ Wm. Brian Little /s/ Stanley Tulchin - --------------------------------- -------------------------------------- Wm. Brian Little Stanley Tulchin Director Director 20 THE TOPPS COMPANY, INC.. FORM 10-K ITEM 14(a)(1), (2) AND (3) LIST OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS (a)(1) Index to Financial Statements: The following Consolidated Financial Statements included in the Annual Report are hereby incorporated by reference to Item 8. Consolidated Statements of Operations -- Years Ended February 26, 1994, February 25, 1995 and March 2, 1996. Consolidated Balance Sheets -- February 25, 1995 and March 2, 1996. Consolidated Statements of Cash Flows -- Years Ended February 26, 1994, February 25, 1995 and March 2, 1996. Consolidated Statements of Stockholders' Equity -- Years Ended February 26, 1994, February 25, 1995 and March 2, 1996. Notes to Consolidated Financial Statements. Report of Independent Public Accounts. (a)(2) Index to Independent Public Accountants' Report and Financial Statement Schedules Page No. Report of Independent Public Accountants........................... S-1 Schedule VIII -- Valuation and Qualifying Accounts - Years Ended February 25, 1995 and March 2, 1996.......................... S-2 Schedules other than those listed above are omitted because they are either not required or not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. 21 (a) (3) Index to Exhibits 3.1 - Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K dated December 3, 1991). 3.2 - Restated By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the Company's Report on Form 8-K dated December 3, 1991). 10.1 - 1987 Stock Option Plan and form of Agreement pursuant to 1987 Stock Option Plan (Incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-1 {No. 33-13082}). 10.2 - Amendment to the 1987 Stock Option Plan dated June 24, 1992 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1993). 10.3 - Retirement Plan and Trust as amended and restated effective February 28, 1993 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1994). 10.4 - Vice Presidents' Incentive Bonus Plan. 10.5 - Supplemental Pension Agreement with Arthur T. Shorin (Incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1 {No. 33-13082}). 10.6 - Amendment to Supplemental Pension Agreement with Arthur T. Shorin dated May 18, 1994 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 25, 1995). 10.7 - License Agreement and Letter Amendment thereto with Major League Baseball Promotion Corporation (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1991). 10.8 - Memorandum of Agreement with Major League Baseball Players Association dated April 10, 1995 (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1991). 10.9 - Settlement Agreement with Major League Baseball Players Association (Incorporated by reference to the Company's Annual 22 Index to Exhibits (continued) Report on Form 10-K for the fiscal year ended February 26, 1994). 10.10 - Employment contract with Arthur T. Shorin (Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-3 {No. 33-43567}). 10.11 - Amendment to employment contract with Arthur T. Shorin dated May 18, 1994 (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1991). 10.12 - Stock Option Agreement with Arthur T. Shorin dated March 29, 1995 (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1991). 10.13 - Employment contract with John J. Langdon (Incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-3 {No. 33-43567}). 10.14 - Amendment to employment contract with John J. Langdon dated June 23, 1993 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1994). 10.15 - Amendment to employment contract with John J. Langdon dated May 18, 1994 (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 1991). 10.16 - Amendment to employment contract with John J. Langdon dated March 27, 1995 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1994). 10.17 - Retail License Agreement with NBA Properties, Inc. dated July 25, 1995 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 1995). 10.18 - Agreement of Lease with One Whitehall Company dated February 24, 1994 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1994). 10.19 - 1994 Non-Employee Director Stock Option Plan.(Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1994). 23 Index to Exhibits (continued) 10.20 - 1994 Stock Appreciation Rights Agreement with John J. Langdon dated as of March 30, 1994 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1994). 10.21 - Agreement for the acquisition of the issued share capital of Merlin Publishing International plc dated May 17, 1995 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended February 25, 1995). 10.22 - Corporate Guaranty in favor of the Bank of Scotland (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 1995). 10.23 - 1996 Stock Option Plan and form of agreement pursuant to 1996 Stock Option Plan. 10.24 - Employment Agreement between Peter Warsop and Merlin Publishing Limited dated June 9, 1989. 10.25 - Amendment to employment agreement between Peter Warsop and Merlin Publishing International plc dated July 6, 1995. 10.26 - Amendment to employment contract with Arthur T. Shorin dated May 22, 1996. 13 - Annual Report (Except for those portions specifically incorporated by reference, the 1996 Annual Report to Stockholders is furnished for the information of the Commission and is not to be deemed "filed" as part of this filing). 21 - Significant Subsidiaries of the Company. 23 - Consent of Independent Public Accountants. 27 - Financial Data Schedule. 24 INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE The Topps Company Inc. We have audited the consolidated balance sheets of The Topps Company, Inc. and Subsidiaries as of March 2, 1996 and February 25, 1995 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 2, 1996, and have issued our report thereon dated March 27, 1996; such consolidated financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of The Topps Company, Inc. and Subsidiaries listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Deloitte & Touche LLP New York, New York March 27, 1996 S-1 THE TOPPS COMPANY, INC. AND SUBSIDIARIES SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS (Amounts in thousands)
Column A Column B Column C Column D Column E - ------------------------------------- ----------- -------------------------- ------------ ---------- Balance Charged to Charged Balance at Beginning Costs and Against Additions at End Description of Period Expenses Sales (Deductions) of Period ----------- --------- -------- ---------- ------------ --------- YEAR ENDED FEBRUARY 26, 1994: Amortization of Sports, Entertainment and Proprietary Products $ 20,145 $ 1,594 $ 21,739 Amortization of Other Intangible Assets 5,845 677 $ 6,522 -------- --------- -------- $ 25,990 $ 2,271 $ 28,261 ======== ========= ======== Allowance for Estimated Losses on Sales Returns $ 14,287 $ 34,588 $ (34,472)(a) $ 14,403 ======== ======== ========= ======== Inventory Valuation Adjustment $ 33,229 $ 7,572 $ (12,994)(b) $ 27,807 ======== ========= ========= ======== =============================================================================================================== YEAR ENDED FEBRUARY 25, 1995: Amortization of Sports, Entertainment and Proprietary Products $ 21,739 $ 1,594 $ 23,333 Amortization of Other Intangible Assets 6,522 677 $ 7,199 -------- --------- -------- $ 28,261 $ 2,271 $ 30,532 ======== ========= ======== Allowance for Estimated Losses on Sales Returns $ 14,403 $ 33,688 $ (35,171)(a) $ 12,920 ======== ======== ========= ======== Inventory Valuation Adjustment $ 27,807 $ 10,647 $ (9,029)(b) $ 29,425 ======== ======== ========== ======== =============================================================================================================== YEAR ENDED MARCH 2, 1996: Amortization of Sports, Entertainment and Proprietary Products $ 23,333 $ 1,610 $ 24,943 Amortization of Other Intangible Assets 7,199 702 $ 7,901 -------- --------- -------- $ 30,532 $ 2,312 $ 32,844 ======== ========= ======== Allowance for Estimated Losses on Sales Returns $ 12,920 $ 53,256 $ (44,053)(a) $ 22,123 ======== ======== ========= ======== Inventory Valuation Adjustment $ 29,425 $ 7,082 $ (13,092)(b) $ 23,415 ======== ========= ========= ======== ===============================================================================================================
(a) Returns charged against provision, net of recoveries. (b) Disposals, net of recoveries. S-2 EX-10.4 2 VICE PRESIDENT'S INCENTIVE BONUS PLAN VICE PRESIDENT'S INCENTIVE BONUS PLAN FOR FISCAL 1997 A fiscal 1997 Vice President's Incentive Bonus plan is established for distribution after the end of fiscal 1997. The President and each Vice President will receive a maximum bonus of 30% of base salary for fiscal 1997 if Consolidated Operating Profit (income before interest, taxes, depreciation and amortization before payment of any bonuses) is at least 64% greater than the level achieved in fiscal 1996, as follows: The President and each Vice President will receive a bonus of 5% of base salary for fiscal 1997 if Consolidated Operating Profit is at least equal to $29,846,000. Thereafter, 2.24% of base salary will be paid as bonus for each 1% improvement in Consolidated Operating Profit up to a level of $31,844,000. For each 1% improvement in Consolidated Operating Profit beyond $31,844,000, an additional .72% of base salary will be paid, up to a maximum incentive bonus of 30% of base salary. EX-10.23 3 1996 STOCK OPTION PLAN THE TOPPS COMPANY, INC. 1996 STOCK OPTION PLAN 1. PURPOSES. The Topps Company, Inc. 1996 Stock Option Plan (the "Plan") is intended to attract and retain the best available personnel, to encourage participants to make substantial contributions to the future success of The Topps Company, Inc., a Delaware corporation (the "Company") or to certain entities directly or indirectly controlled by or affiliated with the Company, and to ensure that the Company can provide competitive compensation opportunities to its personnel. The above objectives will be effectuated through the granting of certain options ("Options") to purchase shares of the Company's common stock, par value $0.01 per share (the "Common Stock") and stock appreciation rights ("SARs"). By meeting these objectives, the Plan is intended to benefit the shareholders of the Company. 2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a committee (the "Committee") consisting of at least two persons, appointed by the Board of Directors of the Company (the "Board of Directors"), each of whom shall be a "disinterested person" within the meaning of and to the extent required by Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934 Act") and an "outside director" for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Within the limits of the express provisions of the Plan, the Committee shall have the authority, in its discretion, to take the following actions under the Plan: (a) to make grants of "incentive stock options" ("ISOs") within the meaning of Section 422 of the Code, Options which are not intended to be ISOs ("Non-Qualified Options") and SARs and to determine the individuals to whom, and the time or times at which, Options or SARs shall be granted, the number of shares of Common Stock to be subject to each Option and whether such Options shall be ISOs or Non-Qualified Options; (b) to interpret the Plan; (c) to prescribe, amend and rescind rules and regulations relating to the Plan; (d) to determine the terms and provisions of the respective Option or SAR agreements; (e) to accelerate the vesting of any outstanding Options or SARs; (f) to make grants to individuals who are foreign nationals or who are employed outside the United States or both, on such terms and conditions (which may be different than specified by the Plan) which the Committee deems necessary or appropriate to assure the viability of such grants to meet the purposes of the Plan and to comply with the laws or customs of the jurisdiction in which such individual is a citizen or resident; (g) to make all other determinations and take all other actions necessary or advisable for the administration of the Plan. In making such determinations, the Committee may take into account the nature of the services rendered by such individuals, and such other factors as the Committee, in its discretion, shall deem relevant. An individual to whom an Option or SAR has been granted under the Plan is referred to herein as an "Optionee". The Committee's determinations on the matters referred to in this Section 2 shall be final, binding and conclusive for all purposes, upon all persons, including without limitation, the Company, the stockholders, the Committee and each member thereof, the directors, officers and employees of the Company, and the Optionees and their respective successors in interest. The Committee may designate persons other than members of the Committee or the Board of Directors to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, except that the Committee may not delegate its authority with regard to the awarding of grants to persons subject to Section 16 of the 1934 Act, unless otherwise permitted by Rule 16b-3 under the 1934 Act, or whose compensation may be subject to limitations on deductibility under Section 162(m) of the Code. Further, the Committee may not delegate its authority if such delegation would cause the Plan not to comply with the requirements of Rule 16b-3 or any successor rule under the 1934 Act. 3. SHARES SUBJECT TO THE PLAN. The Company shall at all times while the Plan is in force reserve such number of shares of Common Stock as will be sufficient to satisfy the requirements of outstanding Options and SARs which provide for settlement in shares of Common Stock. Subject to adjustment as contemplated by Section 9 hereof, the total number of shares of Common Stock which may be issued under the Plan shall not exceed that number of shares of Common Stock which remain available for grant of options under The Topps Company, Inc. 1987 Stock Option Plan, as amended (the "Prior Plan") on June 25, 1996, as increased (i) annually on the last day of the Company's fiscal year, by an amount equal to 0.70% of the aggregate of the total number of shares of Common Stock outstanding on the last day of each fiscal year of the Company, commencing with the fiscal year ending March 1, 1997 and ending with the fiscal year ending February 25, 2001, and (ii) from time 2 to time, by (A) that number of shares of Common Stock which were or are reserved for issuance upon the exercise of Options granted under the Plan, or under the Prior Plan, which shall have expired, been canceled, or terminated for any reason without having been exercised in full, and (B) that number of shares which are exchanged by an Optionee, either actually or by attestation, as full or partial payment to the Company of the purchase price of shares being acquired through the exercise of a stock option granted under the Plan or the Prior Plan. The preceding sentence notwithstanding, the aggregate number of shares for which ISOs may be granted under the Plan shall not exceed 1,500,000. Shares available for issuance under the Plan which are not issued in a given year shall be carried forward and continue to be available in the succeeding year. Where an SAR is settled in cash or any form other than shares of Common Stock, the shares in respect of which the SARs are settled shall not be deemed issued and shall remain available for issuance under the Plan. The shares of Common Stock to be issued under the Plan may be authorized but unissued shares or shares of Common Stock that shall have been or may be reacquired by the Company. 4. ELIGIBILITY. (a) Incentive Stock Options ("ISOs") meeting the requirements of Section 422 of the Code may be granted under the Plan only to employees of the Company or a "subsidiary corporation" within the meaning of Section 424 of the Code ("Subsidiary"). Non-Qualified Options and SARs may be granted under the Plan only to employees and non-employee directors of, and persons or entities which provide significant services to, (i) the Company, (ii) a Subsidiary, or (iii) entities directly or indirectly controlled by or affiliated with the Company and designated by the Committee ("Designated Entities"). The term "Company," when used in the Plan, shall be deemed to include the Company, Subsidiaries and Designated Entities. (b) Nothing contained in the Plan shall be construed to limit the right of the Company to adopt such other incentive arrangements as it may deem advisable, including, without limitation, the right to grant stock options otherwise than under the Plan for proper corporate purposes. 5. TERMS OF GRANTS. Each Option or SAR granted under the Plan shall be evidenced by a written agreement in such form and containing such terms and conditions (not inconsistent with the Plan) as the Committee shall in its discretion adopt. Option and SAR agreements need not contain identical terms and conditions and may include, without limitation, expiration contingencies, forfeitability contingencies based on continued employment with the Company, the meeting of performance criteria, or any or all of the above. 3 (a) The Committee shall fix the purchase price of the shares of Common Stock subject to each Option and the exercise price of each SAR, at the time such Option or SAR is granted; provided, that in no event shall the per share purchase price of an Option or the exercise price of an SAR be less than the Fair Market Value of a share of Common Stock on the date of grant, except that in the case of an Option or SAR granted retroactively in tandem with or as a substitution for another grant, the purchase price or exercise price may be the same as the purchase price or exercise price of such other grant. (b) The Committee shall fix the date or dates on which each Option (or portion thereof) or SAR shall be exercisable at the time such Option or SAR is granted. (c) The Committee shall fix the expiration date of each Option or SAR at the time such Option or SAR is granted. No Option or SAR shall be exercisable after the expiration of ten (10) years from the date of its grant and each Option and SAR shall be subject to earlier termination as determined by the Committee. (d) SARs and Options shall be exercised by the delivery to the Company at its principal office or at such other address as may be established by the Committee (Attention: Assistant Treasurer) of written notice of the number of SARs or number of shares of Common Stock with respect to which the SAR or Option is being exercised accompanied, in the case of an exercise of an Option, by payment in full of the purchase price of such shares. Unless otherwise determined by the Committee at the time of grant, payment may be made (i) in cash, (ii) by certified check or bank cashier's check payable to the order of the Company in the amount of such purchase price, (iii) by delivery to the Company of shares of Common Stock having a Fair Market Value equal to such purchase price, (iv) by irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay such purchase price, to sell the shares of Common Stock to be issued upon exercise of the Option and deliver the cash proceeds less commissions and brokerage fees to the Optionee or to deliver the remaining shares of Common Stock to the Optionee, or (v) by any combination of the methods of payment described in (i) through (iv) above. (e) An Optionee shall not have any of the rights of a holder of the Common Stock with respect to the shares of Common Stock subject to an Option until such shares are issued to such Optionee upon the exercise of such Option. (f) Any grant under the Plan shall be non-transferable and, accordingly, shall not be assignable, alienable, salable or otherwise transferable by the Optionee except by will or the laws of descent and distribution, and may be exercised, during the lifetime of an Optionee, only by the Optionee. No Option or SAR 4 granted under the Plan shall be subject to execution, attachment or other process. (g) For purposes of the Plan, as of any date when the Common Stock is quoted on the National Association of Securities Dealers Automated Quotation System National Market System ("NASDAQ-NMS") or listed on one or more national securities exchanges, the "Fair Market Value" of the Common Stock as of such date shall be deemed to be the closing price, on the day prior to the date of grant, (or, in the case of an exercise by delivery of shares of Common Stock, on the day prior to the delivery of shares to the Company) on the stock exchange (including NASDAQ-NMS) with the largest volume of sales of Common Stock on such day if sold on any exchange, or if not sold on any such exchange, the average of the closing bid and asked prices of the Common Stock on the day prior to the date of grant of the Option (or, in the case of an exercise by delivery of shares of Common Stock, on the day prior to the delivery of shares to the Company); or, if there are no such sales on that date, then on the last preceding date on which such sales were reported. If the Common Stock is not quoted on the NASDAQ-NMS or listed on an exchange, or representative quotes are not otherwise available, the "Fair Market Value" of the Common Stock shall mean the amount determined by the Committee to be the fair market value based upon a good faith attempt to value the Common Stock accurately. (h) In no event shall any single Optionee be granted Options or SARs under the Plan covering more than 500,000 shares of Common Stock during any partial or full fiscal year of the Company during which the Plan is in existence, subject to adjustment as provided in Section 9 hereof. 6. SPECIAL PROVISIONS APPLICABLE TO ISOS. The following special provisions shall be applicable to ISOs granted under the Plan. (a) No ISOs shall be granted under the Plan after ten (10) years from the earlier of (i) the date the Plan is adopted, or (ii) the date the Plan is approved by the Company's shareholders. (b) ISOs may not be granted to a person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, any Subsidiary, or any "parent corporation" (a "Parent") of the Company within the meaning of Section 424(e) of the Code. (c) If the aggregate Fair Market Value of the Common Stock with respect to which ISOs are exercisable for the first time by any Optionee during a calendar year (under all plans of the Company and its Parents and Subsidiaries) exceeds $100,000, such ISOs shall be treated, to the extent of such excess, as Non-Qualified Options. For purposes of the preceding sentence, the 5 Fair Market Value of the Common Stock shall be determined at the time the ISOs covering such shares were granted. 7. STOCK APPRECIATION RIGHTS. A SAR grant shall confer on an Optionee the right to receive in shares of Common Stock, cash or a combination of both, up to the positive difference, if any, between the Fair Market Value of a designated number of shares of Common Stock on the date the SARs are exercised and the designated exercise price of the SARs contained in the terms and conditions of the grant. Shares issued in settlement of the exercise of an SAR shall be valued at their Fair Market Value on the date of the exercise of the SAR. 8. LIMITED RIGHTS. Each Option or SAR granted under the Plan shall include a limited right ("Limited Right") which will allow the Optionee to receive the value of the Option or SAR, as described below, upon a Change in Control as defined below. Limited Rights shall provide for automatic exercise upon the occurrence of a Change in Control, whether or not the related Option or SAR is then exercisable in accordance with its terms, provided there is then a positive difference between the Change in Control Price and the exercise price of the Option or SAR. Each Limited Right shall expire no later than the expiration of the underlying Option or SAR and shall be transferable only when and to the extent the underlying Option or SAR is transferable. Except to the extent payment is due as a result of an automatic exercise upon the occurrence of a Change in Control as provided in the preceding paragraph, Limited Rights or the applicable portion thereof granted with respect to a given Option or SAR shall terminate and cease to exist upon the expiration, termination or forfeiture of the related Option or SAR. Upon the exercise of an Option or SAR, the related Limited Right shall cease to exist to the extent of the shares of Common Stock with respect to which such Option is exercised. Upon the exercise of a Limited Right, the related Option or SAR shall expire. Limited Rights shall be transferable only at such time or times and to the extent that the underlying Option or SAR would be transferable. Upon exercise of a Limited Right, the Optionee shall be entitled to receive in cash, in lieu of exercising his Option or SAR, an amount in cash equal in value to the excess of (i) the Change in Control Price, as defined below, of a share of Common Stock over (ii) the purchase price or exercise price specified in the related Option or SAR agreement, such excess to be multiplied by the number of shares of Common Stock or SARs to which the Limited Right relates. 6 For purposes of this Section 8, the following definitions shall apply: Unless more limited definition is provided in the Option or SAR agreement, a "Change in Control" shall be deemed to have occurred upon the first to occur of the following: (a) The acquisition by any person (including a group, within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act), other than the Company, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 50% or more of the combined voting power of the Company's then outstanding voting securities, without the prior approval of the Board of Directors; (b) The first purchase under a tender offer or exchange offer, other than an offer by the Company, pursuant to which shares of Common Stock have been purchased, unless such tender offer or exchange offer was previously approved by the Board of Directors; or (c) During any period of 24 months or less, the persons who were Continuing Directors immediately before the beginning of such period shall cease, for any reason other than death, to constitute at least a majority of the Board of Directors, provided that any director who was not a director at the beginning of such period shall be deemed to be a Continuing Director if clause (ii) of the definition of "Continuing Director" applies. "Change in Control Price" shall mean the highest price per share of Common Stock paid in any transaction in connection with a Change in Control of the Company. "Continuing Director" shall mean any member of the Board of Directors of the Company who either (i) is a member of the Board of Directors on the date this Plan is adopted, or (ii) was nominated for election to the Board of Directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Continuing Directors. 9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) In the event that the outstanding shares of Common Stock are changed by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split, combination, exchange of shares, spin-off or other distribution (other than normal cash dividends) of Company assets to shareholders, a proportionate adjustment, if any, shall be made by the Committee, as it deems appropriate to reflect such change, in the aggregate number of shares of Common Stock available under the Plan, the maximum number of shares covered by Options or SARs granted to any Optionee during any partial or full calendar year, 7 in the number of shares of Common Stock and price per share of Common Stock subject to outstanding Options, and in the number and exercise price of outstanding SAR grants. If the Company shall be sold, reorganized, consolidated, or merged with another corporation (a "Corporate Event"), an Optionee shall be entitled to receive upon the exercise of his Option or SAR the same number and kind of shares of stock or the same amount of property, cash or securities as he would have been entitled to receive upon the occurrence of any such Corporate Event as if he had been, immediately prior to such event, the holder of the number of shares of Common Stock covered by his Option; provided, however, that the Committee may, in its discretion, unless it is intended that pooling of interests accounting treatment apply, accelerate the exercisability of outstanding Options and SARs to any date within 30 days prior to or concurrent with the occurrence of such Corporate Event and, in connection therewith, may shorten the term of outstanding Options and SARs to the date of the occurrence of such Corporate Event. (b) If fractions of a share would result from any such adjustment, the adjustment shall be revised to the next lower whole number of shares. 10. FURTHER CONDITIONS OF EXERCISE. (a) Unless prior to the exercise of an Option the shares of Common Stock issuable upon such exercise are the subject of a registration statement filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and there is then in effect a prospectus filed as part of such registration statement meeting the requirements of Section 10(a)(3) of the Securities Act, the notice of exercise with respect to such Option shall be accompanied by a representation or agreement of the Optionee to the Company to the effect that such shares are being acquired for investment only and not with a view to the resale or distribution thereof, or such other documentation as may be required by the Company, unless, in the opinion of counsel to the Company, such representation, agreement or documentation is not necessary to comply with the Securities Act. (b) Anything in subparagraph (a) of this Section 10 to the contrary notwithstanding, the Company shall not be obligated to issue or sell any shares of Common Stock until they have been listed on each securities exchange on which the shares of Common Stock may then be listed and until and unless, in the opinion of counsel to the Company, the Company may issue such shares pursuant to a qualification or an effective registration statement, or an exemption from registration, under such state and federal laws, rules or regulations as such counsel may deem applicable. The Company shall use reasonable efforts to effect such listing, qualification and registration, as the case may be. 8 11. TERMINATION OF SERVICE. Except as otherwise specifically provided by the Committee in the Option or SAR agreement, Options and SARs may be exercised only within the period set forth below. An Option or SAR held by a director shall be exercisable only if the Optionee has maintained continuous status as a member of the Board of Directors and an Option or SAR held by an employee shall be exercisable only if the Optionee has maintained continuous status as an employee since the date of grant. No Option or SAR shall be exercisable after termination of an Optionee's membership on the Board of Directors or employment with the Company unless such termination occurs by reason of retirement with the consent of the Board of Directors, death or disability (as defined in Section 22(e)(3) of the Code). In the event of termination of service by retirement with the consent of the Board of Directors, or disability, the Options or SARs held by such individual which were otherwise exercisable on the date of his termination shall expire unless exercised by such individual within a period of three months after the date of termination by retirement or one year after the date of termination by disability. In the case of the death of an Optionee while employed by the Company or within three months of termination of service by retirement with the consent of the Board of Directors, his Options or SARs may be exercised by his heirs, legatees or personal representatives, within a period of one year after the date of death. In the event of the death of an Optionee within one year after the termination of employment due to disability, his Options or SARs may be exercised by his heirs, legatees or personal representatives within a period of one year after the Optionee's date of death. Options or SARs granted under the Plan shall not be affected by any change of employment so long as the Optionee continues to be an employee of the Company, a Subsidiary or a Designated Entity. Notwithstanding the foregoing, the Committee may provide in an Option or SAR agreement for the continued exercisability of Options after termination of employment for such other period or periods and on such other terms and conditions as the Committee determines to be appropriate. In no event, however, shall any Option or SAR be exercisable after 10 years from the date it was granted. 12. TERMINATION, MODIFICATION AND AMENDMENT. (a) The Plan (but not Options or SARs previously granted under the Plan) shall terminate five (5) years from the date the Plan is approved by the Company's stockholders and no Option or SAR shall be granted after termination of the Plan. (b) The Plan may at any time be terminated or, from time to time, be suspended, modified or amended by the Board of Directors; provided, however, that the Board of Directors shall not, without approval by the affirmative vote of the holders of a majority of the voting securities of the Company present in person or represented by proxy and entitled to vote at a meeting 9 duly held in accordance with Delaware law, (i) increase (except as provided by Section 7) the maximum number of shares of Common Stock as to which Options or SARs may be granted under the Plan, or (ii) reduce the minimum purchase price or exercise price at which Options or SARs may be granted under the Plan. (c) No termination, modification or amendment of the Plan may materially and adversely affect the rights conferred under the Plan or any related grant agreement with respect to outstanding Options or SAR grants without the written consent of the affected Optionee. 13. EFFECTIVENESS OF THE PLAN. The Plan shall become effective upon adoption by the Board of Directors, subject to approval by a proper vote of the stockholders of the Company. Options may be granted under the Plan prior to receipt of such approval, provided that, in the event such approval is not obtained, the Plan and all Options and SARs granted under the Plan shall be null and void and of no force or effect. 14. NOT A CONTRACT. Nothing contained in the Plan or in any Option or SAR agreement executed pursuant hereto shall be deemed to confer upon any Optionee any right to continue as a member of the Board of Directors, or to remain in the employ or service of the Company, any Subsidiary or any Designated Entity. 15. GOVERNING LAW. The Plan shall be governed by the laws of the State of Delaware without reference to principles of conflict of laws. 16. WITHHOLDING. As a condition to the exercise of any Option or SAR, the Committee may require that an Optionee satisfy, through deduction or withholding from any payment of any kind otherwise due to the Optionee, or through such other arrangements as are satisfactory to the Committee, the full amount of all federal, state and local income and other taxes of any kind required or permitted to be withheld in connection with such exercise. The Committee may permit shares of Common Stock to be used to satisfy tax withholding requirements and such shares shall be valued at their Fair Market Value as of the settlement date of the Option or SAR being exercised. 17. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Unless otherwise determined by the Committee, compensation recognized upon exercise of Options or SARs or upon settlement of rights under the Plan shall not be deemed a part of 10 the recipient's compensation for purposes of calculating payments or benefits from any Company benefit or severance program (or severance pay law of any country). The above notwithstanding, the Company may adopt other compensation programs, plans or arrangements as it deems appropriate or necessary. 18. UNFUNDED PLAN. Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any person. To the extent any person holds any rights by virtue of a grant awarded under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. 19. SUCCESSORS AND ASSIGNS. The Plan shall be binding on all successors and assigns of a participant, including, without limitation, the estate of such participant and the executor or administrator of such estate, or any receiver or trustee in bankruptcy or representative of the participant's creditors. 11 THE TOPPS COMPANY, INC. AGREEMENT PURSUANT TO THE 1996 STOCK OPTION PLAN FOR NON-QUALIFIED STOCK OPTIONS AGREEMENT, dated as of __________________, 1996 between the Topps Company, Inc. (the "Company") and Name (the "Individual"). The Individual is hereby granted the option to purchase from the Company the number of shares of Common Stock set forth below at the purchase price per share set forth below: Non-Qualified Stock Option for ShareNumber shares at $_____ per share, _____________ of such shares exercisable at the end of one year from the date granted and an additional _____________ of such shares each year thereafter for a period of ______ years in the aggregate, on a cumulative basis, which option shall terminate on ____________, 2006, unless terminated earlier pursuant to paragraph 11 of The Topps Company, Inc. 1996 Stock Option Plan (the "Plan"). This option was granted on the date as of which this Agreement is dated. In conjunction with the option granted above, the Individual is hereby granted a Limited Right covering ShareNumber with an exercise price of $____ per share. Such Limited Right shall be governed by paragraph 8 of the Plan, shall terminate no later than the termination or expiration of the related option, and shall be automatically exercised upon the occurrence of a Change in Control, whether or not the related option is then exercisable, provided there is a positive difference between the Change in Control Price and the exercise price of the related option. Upon the exercise of the Limited Right, the related option granted above shall expire and the Individual shall have no further rights with respect thereto. The Individual understands and acknowledges that this option and the related Limited Rights are subject to the terms and conditions set forth in the copy of the Plan annexed hereto as Exhibit A, which terms and conditions are hereby incorporated by reference. All terms used in this Agreement, unless otherwise defined in this Agreement, have the same meaning as in the Plan. The option shall be non-transferable other than at death and shall be exercisable during the Individual's lifetime only by the Individual. 12 All notices hereunder shall be in writing, and if to the Company, shall be delivered personally to the Assistant Treasurer of the Company or mailed to its principal executive offices, addressed to the attention of the Assistant Treasurer, and if to the Individual, shall be delivered personally or mailed to the Individual at the address noted below. Such addresses may be changed at any time by written notice from one party to the other. All decisions or interpretations made by the Committee as provided in paragraph 2 of the Plan with regard to any question arising hereunder or under the Plan shall be binding and conclusive on the Company and the Individual. This Agreement shall bind and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent provided in paragraph 19 of the Plan, the heirs, legatees or personal representatives of the Individual. In witness whereof, this Agreement has been executed by the Company by one of its duly authorized officers as of the date of grant specified above. The Topps Company, Inc. By:____________________________ Arthur T. Shorin Chairman of the Board I hereby acknowledge receipt of the 1996 Stock Option Plan and agree to the provisions set forth in this Agreement. __________________________ Date FullName Street CityStateZip S.S. #: Social 13 THE TOPPS COMPANY, INC. AGREEMENT PURSUANT TO THE 1996 STOCK OPTION PLAN FOR INCENTIVE STOCK OPTIONS AGREEMENT, dated as of __________________, 1996 between the Topps Company, Inc. (the "Company") and Name (the "Individual"). The Individual is hereby granted the option to purchase from the Company the number of shares of Common Stock set forth below at the purchase price per share set forth below: Incentive Stock Option for NumberShares shares at $_____ per share, _____________ of such shares exercisable at the end of one year from the date granted and an additional _____________ of such shares each year thereafter for a period of ______ years in the aggregate, on a cumulative basis, which option shall terminate on ____________, 2006, unless terminated earlier pursuant to paragraph 11 of The Topps Company, Inc. 1996 Stock Option Plan (the "Plan"). This option was granted on the date as of which this Agreement is dated. In conjunction with the option granted above, the Individual is hereby granted a Limited Right covering NumberShares with an exercise price of $___ per share. Such Limited Right shall be governed by paragraph 8 of the Plan, shall terminate no later than the termination or expiration of the related option, and shall be automatically exercised upon the occurrence of a Change in Control, whether or not the related option is then exercisable, provided there is a positive difference between the Change in Control Price and the exercise price of the related option. Upon the exercise of the Limited Right, the related option granted above shall expire and the Individual shall have no further rights with respect thereto The Individual understands and acknowledges that this option and the related Limited Rights are subject to the terms and conditions set forth in the copy of the Plan 14 annexed hereto as Exhibit A, which terms and conditions are hereby incorporated by reference. All terms used in this Agreement, unless otherwise defined in this Agreement, have the same meaning as in the Plan. The option shall be non-transferable other than at death and shall be exercisable during the Individual's lifetime only by the Individual. The undersigned Individual hereby acknowledges that in order for an option to be treated as an incentive stock option under the Internal Revenue Code, the Common Stock acquired upon exercise of such option must not be disposed of until a date which is at least two years after the date such option was granted and one year after the date such Common Stock was acquired by such holder. Without written notice, delivered by hand or mailed by prepaid, registered or certified mail, addressed to the Assistant Treasurer of the Company at the Company's principal executive offices, no holder may dispose of Common Stock acquired pursuant to the exercise of an incentive stock option within the two or one year period discussed above. All notices hereunder shall be in writing, and if to the Company, shall be delivered personally to the Assistant Treasurer of the Company or mailed to its principal executive offices, addressed to the attention of the Assistant Treasurer, and if to the Individual, shall be delivered personally or mailed to the Individual at the address noted below. Such addresses may be changed at any time by written notice from one party to the other. All decisions or interpretations made by the Committee as provided in paragraph 2 of the Plan with regard to any question arising hereunder or under the Plan shall be binding and conclusive on the Company and the Individual. This Agreement shall bind and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent provided in paragraph 19 of the Plan, the heirs, legatees or personal representatives of the Individual. In witness whereof, this Agreement has been executed by the Company by one of its 15 duly authorized officers as of the date of grant specified above. The Topps Company, Inc. By: ________________________ Arthur T. Shorin Chairman of the Board I hereby acknowledge receipt of the 1996 Stock Option Plan and agree to the provisions set forth in this Agreement. ____________________________ Date FullName Street CityStateZip S.S. #: Social 16 EX-10.24 4 EMPLOYMENT AGREEMENT THIS AGREEMENT is made the 9th day of June One thousand nine hundred and eight-nine BETWEEN (1) MERLIN PUBLISHING LIMITED (Company Number 2331336) whose registered office is at 3 Dalling Road, London W6 ("the Company") and (2) PETER WARSOP of Manor House Lodge, Gracedieu Road, Thringstone, Leicester ("the Executive") IT IS HEREBY AGREED:- TERM ---- 1.(a) SUBJECT to earlier termination as hereinafter provided the Company shall employ the Executive and the Executive shall serve the Company in the Capacity of Managing Director of the Company unless and until determined by 24 months notice by the Company or 6 months notice by the Executive such notice not to be served by the Executive before the expiry of 18 months from the date of this agreement provided that the Company shall have the right to pay salary in lieu of notice. (b) THE Company shall be entitled at any time to appoint another person or persons to act jointly with the Executive in the said office. DUTIES ------ 2. DURING his employment hereunder the Executive shall:- (a) diligently perform the duties and exercise the powers and functions which from time to time may be assigned to or vested in him by the Board relating to the Company. (b) during the continuance of this Agreement devote the whole of his time, attention and ability to his duties hereunder at such place or places within the United Kingdom or overseas as the Board shall from time to time determine; (c) comply with all reasonable requests instructions and regulations made by the Board (or by anyone authorised by them) and give to the Board or such person such explanations information and assistance as may reasonably be required; (d) well and faithfully serve the Company to the best of his ability and use his best endeavours to promote the interests of the Company; (e) not without the written consent of the Board directly or indirectly be engaged, concerned or interested in any business other than that of the Company whatsoever whether as principal, partner, director, employee, consultant, investor or otherwise PROVIDED THAT the Executive may hold for investment purposes only any units of an authorised unit trust and up to five per cent (5%) of the issued securities of any class in any company whose shares 1 are listed on a Recognised Investment Exchange or in respect of which dealing takes place in the Unlisted Securities Market or the Third Market of The International Stock Exchange of the Untied Kingdom and Republic of Ireland Limited. REMUNERATION ------------ 3.(a) BY way of remuneration for his services hereunder the Company shall pay to the Executive:- (i) A salary at the rate of thirty two thousand five hundred pounds ((pound)32,500) per annum (which shall be deemed to accrue from day to day) payable in arrears by equal monthly installments on the last working day of each month such salary being inclusive of any fees to which the Executive may be entitled as a Director of the Company; and (ii) A bonus in accordance with such arrangements as shall be determined by the Board from time to time. (b) The Executive's salary shall be reviewed by the Board on 1 June each year and the rate thereof may be increased with effect from any such review date. PENSION AND INSURANCE BENEFITS ------------------------------ 4. THE Company will provide the Executive with the following insurance and other benefits particulars of which may be obtained from the Company Secretary:- (a) During his employment hereunder the Company shall pay contributions at a rate of not less than 10% of the Executive's gross basic salary from time to time (excluding any bonus) into any personal pension scheme taken out by the Executive for the benefit of the Executive, and/or any of his wife, children and dependents. (b) Pay subscriptions on the Executive's behalf to BUPA or any similar medical insurance scheme to insure against the cost of medical expenses of himself, his spouse and minor children at the Provincial Hospital scale from time to time. (c) Pay subscriptions on the Executive's behalf to a reputable insurer to provide the Executive with permanent health insurance on such terms as the Board shall approve. EXPENSES -------- 5. THE Company shall reimburse to the Executive all travelling hotel entertainment and other expenses reasonably incurred by him in the proper performance of his duties hereunder PROVIDED THAT on request 2 the Executive shall provide the Company with such vouchers or other evidence of actual payment of such expenses as the Company may reasonably require. MOTOR CAR --------- 6. IN accordance with its car policy from time to time the Company shall provide the Executive with the use of a motor car both for his sole business and personal use and personal use by his wife. The Company shall pay the Road Fund License therefor and all insurance premiums maintenance and repair expenses and whilst the motor car is being used exclusively for the purposes of the Company's business but not otherwise the Company shall pay for all petrol oil and other running expenses thereof. Upon termination of his employment for whatever reason the Executive shall forthwith return the motor car to the Company, together with all keys and fittings supplied by the Company. HOLIDAYS AND HOLIDAY PAY ------------------------ 7.(a) IN addition to the normal Bank and Public Holidays the Executive shall be entitled to twenty-five (25) working days paid holiday during each calendar year to be taken at such time or times as may be agreed with the Board. The Executive may not without the consent of the Board carry forward any unused part of his holiday entitlement to a subsequent calendar year. (b) FOR the calendar year during which the Executive's employment hereunder commences or terminates the Executive shall be entitled to such proportion of his annual holiday entitlement as the period of his employment during such year shall bear to a whole calendar year. Upon termination of the Executive's employment for whatever reason the Executive shall be entitled to salary in lieu of any outstanding holiday entitlement but may be required to repay to the Company any salary received in respect of holiday taken in excess of his proportionate holiday entitlement. SICKNESS/INCAPACITY ------------------- 8.(a) IF the Executive shall be prevented by illness accident or other incapacity from properly performing his duties hereunder he shall report this fact forthwith to any director on the Board and if the Executive is so prevented for seven (7) or more consecutive days he shall forthwith provide a medical practitioner's statement and weekly (or such other period as the Board may reasonably direct) thereafter until he returns to work. Immediately following the Executive's return to work after any period of absence exceeding 3 days the Executive shall complete a Self-Certification form in such form as the Board may from time to time direct detailing the reason for such absence. (b) IF the Executive shall be so incapacitated and so certified he shall be paid his full salary for up to six (6) months absence in aggregate in any twelve 3 (12) consecutive months and thereafter such remuneration as the Board shall in its discretion allow PROVIDED THAT such remuneration shall be inclusive of any Statutory Sick pay to which the Executive is entitled under the provisions of the Social Security and Housing Benefits Act 1982 but Social Security Sickness benefit or other benefits recoverable by the Executive (whether or not recovered) may be deducted at the discretion of the Board. (c) FOR Statutory Sick Pay purposes the Executive's qualifying days shall be his normal working days. CONFIDENTIAL INFORMATION ------------------------ 9. THE Executive shall not during his employment hereunder (save in the proper course thereof) or at any time after its termination for any reason whatsoever disclose to any person or persons whatsoever or otherwise make use of any confidential or secret information which he has or may in the course of his employment hereunder become possessed relating to the business affairs of the Company including without limiting the generality of the foregoing confidential or secret information relating to its business methods, finances, business, financial, market and development or manpower plans, customer lists or details, computer systems and software, know-how or trade secrets or other matters connected with the products or services manufactured marketed provided or obtained by the Company and information concerning its relationships with actual or potential clients or customers and the needs and requirements of such persons all of which is vital to the success of the Company. Such information is hereinafter called "Confidential Information". INVENTIONS ---------- 10.(a) THE Executive shall promptly disclose to the Company:- (i) all improvements inventions and discoveries whether the same shall be patentable or not made by the Executive (either alone or with any other person) relating directly or indirectly to the business of the Company or which may in the opinion of the Company be capable of being used or adapted for use therein or in connection therewith; and (ii) all applications for Patents and all Patents filed or granted disclosing inventions made by the Executive in whole or in part during the period of his employment by the Company and whether made during or outside the course of the Executive's normal duties as an employee of the Company and whether or not relating to the business of the Company. (b) IF during his employment by the Company the Executive shall at any time either alone or with any other person or persons make any improvement, invention or discovery whether the same shall be patentable or not which should be taken to belong to the Company by virtue of the provisions of Section 39 of the Patents Act 1977 the Executive shall consider himself in relation thereto as a trustee for the Company and will: (i) not without the written consent of the Company apply for Letters of Patent or similar protection either in the Untied Kingdom or any other part of the world in respect of any such improvement invention or discovery; (ii) if and whenever required by the Company sign all such documents and do all such things as may be necessary or desirable for the purposes of obtaining Letters Patent or similar protection for any such improvement invention or discovery in the United Kingdom or in any other part of the world and for vesting such Letters Patent or similar protection in the Company absolutely as sole beneficial owner or as the Company may direct; (iii) if and whenever required by the Company apply as nominee of the Company or jointly with the Company for Letters Patent or similar 4 protection for any such improvement invention or discovery in the United Kingdom or in any other parts of the world and sign all such documents and do all such things as may be necessary or desirable for the purposes of obtaining Letters Patent or similar protection and vesting the same in the Company absolutely as sole beneficial owner or as the Company direct. (c) DECISIONS as to the patenting and exploitation of any such improvement invention or discovery as is referred to in sub-clause (b) above shall be in the sole discretion of the Company. (d) THE Executive hereby irrevocably appoints the Company to be his attorney or agent in his name and on his behalf to execute sign and do all such instruments or things and generally to use his name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this clause and with respect to any third party a certificate in writing signed by any Director or the Company Secretary that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case. (e) THE Company will pay all expenses in connection with any application for Letters Patent made by the Executive as nominee for or jointly with the Company pursuant to the provisions of this clause and will indemnify the Executive in respect of all liabilities in connection with or arising from such applications for Letters Patent when granted. COPYRIGHT AND REGISTERED DESIGNS -------------------------------- 11.(a) IF during his employment hereunder the Executive shall at any time whether during the course of the Executive's normal duties or other duties specifically assigned to him (whether or not during normal working hours) either alone or in conjunction with any other person originate any design (whether registrable or not) or other work in which copyright may subsist the Executive shall forthwith disclose the same to the Company and shall (subject to the effect of sub-clause (b) below) regard himself in relation thereto as a trustee for the Company. (b) THE Executive hereby assigns to the Company by way of future assignment of copyright the copyright and other proprietary rights if any for the full term thereof throughout the world in respect of all copyright works written originated conceived or made by the Executive (except only those copyright works written originated conceived or made by the Executive wholly outside his normal working hours hereunder and wholly unconnected with his service hereunder) during the period of his employment hereunder. (c) IT is agreed that for the purposes of the proviso to Section 2(1) of the Registered Designs Act, 1949 the covenants on the part of the Company in this Agreement shall as between the Company and the Executive be treated as good consideration and the Company shall be treated for the 5 purpose of that Act as the proprietor of any design of which the Executive may be the author in the circumstances described in sub-clause (a) above. (d) THE Executive agrees and undertakes that he will execute such deeds or documents and do all such acts and things as may be necessary or desirable to substantiate the rights of the Company in respect of the matters referred to in sub-clauses (b) and (c) above. PREVENTION OF UNFAIR COMPETITION -------------------------------- 12.(a) THE Executive acknowledges that his employment has and will require that he have access to and an intimate knowledge of Confidential Information and customers and suppliers of the Company and the Executive further acknowledges that the disclosure of any Confidential Information to actual or potential competitors of the Company would place it at a serious competitive disadvantage and would do serious damage (financial or otherwise) to its business and that if on leaving the employment of the Company the Executive was to establish his own competing business or join one as a partner or was to be employed or engaged in any executive, managerial, technical or consultative capacity by any actual or potential competitor of the Company it would cause immeasurable harm to the Company. (b) Accordingly, but without prejudice to any other duty whether express or implied by law or equity, the Executive undertakes that following the termination of his obligation to serve the Company he will NOT:- (i) for 12 months thereafter be engaged on his own account or as a partner or in any executive managerial technical or consultative capacity in any business concern (of whatever kind) which is or shall be in direct competition with any of the Businesses in the United Kingdom and or any other country in which the Businesses are carried on at the date of the termination of this employment. (ii) for 12 months thereafter either on his own behalf or on behalf of any other person or persons in competition with the Businesses or any of them canvass solicit or approach or cause to be canvassed or solicited or approached for orders or deal with any person or persons who at the date of the termination hereof was trading with the Company for the supply of services or goods or within the final 12 months of the Executive's employment was a client or customer of the Company with whom the Executive or any subordinate of his had dealt. (iii) for 24 months thereafter solicit or entice or endeavour to solicit or entice away from the Company or employ any person employed by the Company in an executive managerial technical sales or consultative capacity at the date of the termination of the Executive's employment. 6 PROVIDED THAT whilst the restrictions in (i) - (iii) of this sub-clause are considered by the parties to be reasonable in all the circumstances as at the date hereof it is acknowledged that restrictions of such a nature may be invalid because of changing circumstances or other unforeseen reasons and accordingly it is hereby agreed and declared that if any one or more such restrictions shall be judged to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Company but would be valid if part of the wording thereof were deleted or the period thereof reduced or the range of activities or area covered thereby reduced in scope the said restrictions shall be deemed to apply with such modifications as may be necessary to make them valid and effective and any such modification shall not thereby affect the validity of any other restriction contained herein each such restriction being deemed entirely separate form the others. (c) For the purpose of sub-clause (b) "the Businesses" means the businesses of the Company with which the Executive was to a material extent concerned or responsible for during the final 12 months of his employment by the Company. TERMINATION BY RECONSTRUCTION OR AMALGAMATION --------------------------------------------- 13. IF before the expiration of this Agreement the employment of the Executive hereunder shall be terminated by reason of the liquidation of the Company for the purposes of amalgamation or reconstruction or as part of any arrangement for the amalgamation or transfer of the undertaking of the Company in which the Executive is employed not involving liquidation and the Executive shall be offered employment with the amalgamated or reconstructed company or transferee of the undertaking on terms generally not less favourable than the terms of this Agreement the Executive shall have no claim against the Company in respect of the termination of his employment by the Company. TERMINATION ON THE HAPPENING OF CERTAIN EVENTS ---------------------------------------------- 14.(a) THE Company without prejudice to any remedy which it may have against the Executive for the breach or non-performance of any of the provisions of this Agreement may be notice to the Executive forthwith determine this Agreement if:- (i) he becomes prohibited by law from being a director; or (ii) he becomes bankrupt or makes any arrangement or composition with his creditors generally; or (iii) he is or may be suffering from a mental disorder and either:- (a) he is admitted to hospital in pursuance of an application for treatment under the Mental Health Act 1983 or in Scotland an 7 application for admission under the Mental Health (Scotland) Act 1960, or (b) an order is made by a court having jurisdiction (whether in the United Kingdom or elsewhere) in matters concerning mental disorder for his detention or for the appointment of a receiver, curator bonis or other person to exercise powers with respect to his property or affairs; or (iv) he resigns his office by notice to the Company; or (v) he is convicted of any criminal offence save an offense under road traffic legislation for which he is not sentenced to any term of immediate or suspended imprisonment; or (vi) he commits any serious breach or repeats or continues after written warning any other breach of his obligations hereunder; or (vii) he is guilty of any conduct which in the reasonable opinion of the Board brings him or the Company into disrepute. (b) THIS Agreement shall automatically determine on the Executive's sixty-fifth birthday. (c) THE Company shall be entitled to terminate this Agreement by giving prior notice of not less than the Executive's entitlement to statutory minimum notice plus a further week to the Executive at any time while he is prevented by illness or accident or other incapacity from performing his duties and has been so prevented for a period or periods aggregating 12 months in the preceding 24 months. Provided that the Company shall withdraw any such notice if during its currency the Executive returns to full time work and provides a medical practitioner's certificate satisfactory to the Board to the effect that he has fully recovered his health and that no recurrence of his illness or incapacity can reasonably be anticipated. EXECUTIVE'S OBLIGATIONS UPON TERMINATION OF EMPLOYMENT ------------------------------------------------------ 15. UPON the termination of his employment hereunder (for whatever reason and whether or not the Company shall have been in breach of any of its obligations hereunder) the Executive shall:- (a) forthwith tender his resignation as a Director of the Company (without payment or agreement of compensation therefor) and the Executive hereby irrevocably appoints the Company Secretary for the time being to be his attorney in his name and on his behalf to sign any documents and do any things necessary or requisite to give effect thereto; (b) deliver up to the Company all correspondence drawings documents and other papers and all other property belonging to the Company which may be in the Executive's possession or under his control (including such as may have been made or prepared by or have come into the possession or under the control of the Executive and relating in any way to the business or affairs of the Company or of any supplier agent distributor or customer of the Company), and the Executive shall not without the written consent of 8 the Board retain any copies thereof; (c) if so requested send to the Company Secretary a signed statement confirming that he has complied with sub-clause (b) hereof; and (d) not at any time represent himself still to be connected with the Company. EFFECT OF TERMINATION OF THIS AGREEMENT --------------------------------------- 16. THE expiration or determination of this Agreement howsoever arising shall not operate to affect such of the provisions hereof as are expressed to operate or have effect thereafter and shall be without prejudice to any other accrued rights or remedies of the parties. STATUTORY PARTICULARS OF EMPLOYMENT ----------------------------------- 17. THE particulars required to be given to the Executive by Section 1 of the Employment Protection (Consolidation) Act, 1978 and which are not given elsewhere in this Agreement are set out below. (i) The employment of the Executive by the Company began on the date hereof. (ii) No employment of the Executive with a previous employer counts as part of the Executive's continuous employment with the Company and therefore the Executive's period of continuous employment began on the date referred to in (i) above. (iii) The Executive's hours of work shall be the normal hours of work of the Company which are from 9:00 am to 5:30 p.m. Monday to Friday inclusive together with such additional hours on those days or at weekends as may be necessary so as properly to fulfill his duties hereunder to the satisfaction of the Board. (iv) If the Executive is dissatisfied with any disciplinary decision or if he has any grievance relating to his employment hereunder (not otherwise resolved by the Chairman) he should refer such disciplinary decision or grievance to the Board and the reference will be dealt with by discussion and decision of a Board meeting. (v) No Contracting-Out Certificate pursuant to the provisions of the Social Security Pensions Act 1975 is in force in respect of the Executive's employment hereunder. PRIOR AGREEMENTS ---------------- 18. THIS Agreement supersedes all previous agreements and arrangements (if any) relating to the employment of the Executive by the Company (which shall be deemed to have been terminated by mutual consent) and sets out the entire agreement of the parties in relation to the Executive's employment. 9 NOTICES ------- 19. ANY notice to be given hereunder shall be in writing. Notice to the Executive shall be sufficiently served by being delivered personally to him or by being sent by registered post addressed to him at his usual or last known place of abode. Notice to the Company shall be sufficiently served by being delivered to the Company Secretary or by being sent by registered post to the registered office of the Company. Any notice if so posted shall be deemed served upon the third day following that on which it was posted. DEFINITIONS ----------- 20.(a) IN this Agreement: (i) "The Board" means the Board of Directors of the Company from time to time. (ii) "Recognised Investment Exchange" means any body of persons which is a recognised investment exchange for the purposes of the Financial Services Act 1986. (b) THE headings to the clauses are for convenience only. (c) ANY reference to an Act of Parliament includes any statutory modification or re-enactment. PROPER LAW AND JURISDICTION --------------------------- 21. THE validity construction and performance of this Agreement shall be governed by English law and all disputes concerning such matters shall be subject to the non-exclusive jurisdiction of the High Court of Justice in England and Wales to which the parties irrevocably submit. IN WITNESS whereof the Company has caused its Common Seal to be hereunto affixed and the Executive has hereunto set his hand and seal the day and year first above written THE COMMON SEAL of MERLIN PUBLISHING LIMITED WAS HEREUNTO AFFIXED in the presence of:- PETER A. DUNK Director IAN H. CURRIE Director/Secretary 10 SIGNED SEALED and DELIVERED PETER WARSOP by the said PETER WARSOP in the presence of:- 11 EX-10.25 5 EMPLOYMENT AGREEMENT MERLIN PUBLISHING INTERNATIONAL PLC July 6, 1995 Dear MR. WARSOP Pursuant to the agreement reached between you and Merlin Publishing International plc ("the Company") and in consideration of the parties thereto entering into the Acquisition Agreement (by which the Topps Company Inc. will acquire the share capital of Merlin Publishing International plc) this letter confirms that with effect from July 6, 1995 the Service Contract entered into between you and the Company dated June 9, 1989 ("the Service Contract") shall be varied as follows: 1. In clause 1(a) the period of 24 months (being the notice required of the Company to terminate your employment) shall be substituted by a period of 12 months. 2. Clause 1 will be amended to include an additional sub-clause (c) in the following terms: (c) the Executive shall at the request of the Board resign from any office which he holds whether as a Director or in any other capacity without claim for compensation and any such resignation will not affect the Executive's continuing employment hereunder. Should the Executive fail to resign from any office held by him pursuant to this sub-clause (c) the Company is hereby irrevocably authorised to appoint some person in his name and on his behalf to execute any documents and do all things requisite to effect such resignation. 3. Clause 9 will be amended to include the words "or any Group Company" to follow on from the words "the Company" where they appear so as to extend the information defined as "Confidential Information" to that of any Group Company and the reference to "its relationships with actual or potential clients or customers" shall be extended to include any such relationship with actual or potential clients or customers of any Group Company. 4. Clause 12 shall be substituted by the following: 12.(A) The Executive shall not either directly or indirectly during the continuance of his employment by the Company nor at any time during the period of twelve months from the date of termination of his employment (for whatever reason and howsoever effected): 1. Seek for the purposes of competition with the Business of the Company to procure orders from or the services of or do business with any person (including without limitation any customer, distributor, licensor, supplier or sub-contractor) who has or have at any time in the period of six months preceding the date of termination of his employment ("the preceding period"): (a) done business with the Company where the Executive has had personal dealings with such person during the preceding period; or (b) been involved in negotiations to do business with the Company where the Executive has had personal dealings with such person during the preceding period. PROVIDED ALWAYS that nothing in this sub-clause shall prohibit the Executive from the seeking or procuring of orders or the doing of business or the obtaining of services which neither relate nor are similar to the Business of the Company as at the date of the termination of his employment. 2. Seek for the purposes of competition with the Business of any Group Company to procure orders from or the services of or do business with any person (including without limitation any customer, distributor, licensor, supplier or sub-contractor) who has or have at any time in the period of six months preceding the date of termination of his employment ("the preceding period"): (a) done business with any such Group Company where the Executive has had personal dealings with such person during the preceding period; or (b) been involved in negotiations to do business with any such Group Company where the Executive has had personal dealings with such person during the preceding period; PROVIDED ALWAYS that nothing in this sub-clause shall prohibit the Executive from the seeking or procuring of orders or the doing of business or the obtaining of services which neither relate nor are similar to the Business of any such Group Company as at the date of the termination of his employment. 3. Accept for the purposes of competition with the Business of the Company orders from or the services or the business of any person (including without limitation any customer, distributor, licensor, supplier or sub-contractor) who has or have at any time in the period of six months preceding the date of termination of his employment ("the preceding period"): (a) done business with the Company where the Executive has had personal dealings with such person during the preceding period; or (b) been involved in negotiations to do business with the Company where the Executive has had personal dealings with such person during the preceding period. PROVIDED ALWAYS that nothing in this sub-clause shall prohibit the Executive from accepting orders or doing business or obtaining services which neither relate nor are similar to the Business of the Company as at the date of the termination of his employment. 2 4. Accept for the purposes of competition with the Business of any Group Company orders from or the services or the business of any person (including without limitation any customer, distributor, licensor, supplier or sub-contractor) who has or have at any time in the period of six months preceding the date of termination of his employment ("the preceding period"): (a) done business with any such Group Company where the Executive has had personal dealings with such person during the preceding period; or (b) been involved in negotiations to do business with any such Group Company where the Executive has had personal dealings with such person during the preceding period. PROVIDED ALWAYS that nothing in this sub-clause shall prohibit the Executive from accepting orders or doing business or obtaining services which neither relate nor are similar to the Business of any such Group Company as at the date of the termination of his employment. 5. Carry on or be engaged in any activity in competition with the Business of the Company or the Business of any Group Company as at the date of the termination of his employment where the Executive has been involved in the said Business or Businesses at any time in the period of six months preceding the date of the termination of his employment be it in terms of supervision or for the purpose of giving advice or otherwise actively engaged in the Business or Businesses including in respect to obtaining business. (B) The Executive shall not during the continuation of his employment by the Company nor at any time during the period of twelve months from the date of termination of his employment (for whatever reason and howsoever effected) without the written permission of the Board (such permission not to be unreasonably withheld or delayed and in particular such permission will not be withheld if the Board considers that the employee concerned has neither a personal influence with any customer, distributor, licensor, supplier or sub-contractor nor is in possession of confidential information) solicit or employ directly or indirectly, on his own behalf or on behalf of any other person, the services of any individual who was an employee (of senior managerial or equivalent status) or director of the Company or any other Group Company during the period of twelve months preceding the date of termination of the Executive's employment and with whom the Executive had dealings whether or not such person would commit any breach of his contract of employment with the relevant company by reason of his leaving service. (C) The benefit of each obligation of the Executive under sub-clauses 12(A) to (B) above may be assigned to and enforced by all successors or assignees for the time being carrying on the Business of the Company or the Business of other Group Company as appropriate. (D) For the purpose of this Clause 12 "the Business" of the Company and "the Business" of any Group Company means: 3 I. the design, production, marketing and distribution of stickers, sticker albums, trading cards, trading card collections and collectible picture products (including but not limited to, for example, POGs); and II. the design, production, marketing and distribution of any other product as the Company or any Group Company may be involved in or with either during the Executive's employment or as at the date of the termination of the Executive's employment. References to "the Businesses" shall be construed accordingly. 5. Clause 20 shall include the following definitions: I. "Group" means any holding company and any subsidiary or associated companies of the Company (as defined under the Companies Act 1985) or of any such holding company and "Group Company" shall be construed accordingly. II. "person" means any individual, company, corporation, firm, partnership, joint venture, association, organisation or trust (in each case whether or not having separate legal personality). In all other respects the terms of the Service Contract remain unchanged and of full force and effect. Please sign, date and return the enclosed copy of this letter by way of acceptance of the variation to the terms and conditions of your employment as herein stated. Yours sincerely, FOR AND ON BEHALF OF MERLIN PUBLISHING INTERNATIONAL plc I hereby confirm my acceptance of the variation to the terms of the Service Contract as herein stated. Signed PETER WARSOP Dated July 6, 1995 ----------------------------- ---------------------------- 4 EX-10.26 6 AMENDMENT TO EMPLOYMENT CONTRACT May 22, 1996 Mr. Arthur T. Shorin 400 East 56th Street New York, NY 10022 Dear Mr. Shorin: The Topps Company, Inc. (the "Company") hereby agrees with you to the following amendment (the "Amendment") to your Employment Agreement with the Company, dated as of October 28, 1991, as amended on May 18, 1994 and May 19, 1995 (the "Agreement"). This will confirm your consent (i) to the waiver of the 10% increase in your base salary pursuant to section 5(a) of the Agreement for the Company's fiscal year ending March 1, 1997 only and (ii) to a target annual bonus opportunity of 20% of annual base salary for the Company's fiscal year ending March 1, 1997. The amendments set forth herein shall be limited precisely as written and shall not be deemed to be a modification or waiver of any right or remedy which the parties hereto may now have or may have in the future under or in connection with the Agreement, including, without limitation, the right to have all termination payments required to be made under Section 7 of the Agreement calculated to include all salary increases required to have been provided under the terms of the Agreement, without regard to the limited waivers of such increases made by the amendments to the Agreement dated May 18, 1994, May 19, 1995 and May 22, 1996. Except as provided herein, the Agreement shall remain unchanged and in full force and effect. This Amendment may be executed in counterparts, which taken together shall constitute one and the same amendatory instrument. This Amendment shall be governed by and construed and enforced in accordance with the laws of the State of New York. Very truly yours, THE TOPPS COMPANY, INC. By: /s/ Catherine Jessup /s/ Arthur T. Shorin ------------------------------------------ ---------------------------- Catherine Jessup Arthur T. Shorin Vice President-Chief Financial Officer EX-13 7 ANNUAL REPORT ============ [LOGO}TOPPS ============ 1 9 9 6 - ------------ A N N U A L - ------------ R E P O R T [PHOTO] [LOGO}TOPPS [BACKGROUND: NEWSPAPER COLLAGE OF ARTICLES] [PHOTO} FOR NEARLY 60 YEARS, TOPPS HAS STOOD FOR QUALITY, ENTERTAINMENT, FUN AND GOOD VALUE. TOPPS IS AN INTERNATIONAL MARKETER OF ENTERTAINMENT PRODUCTS, PRINCIPALLY COLLECTIBLE PICTURE CARDS, STICKER AND ALBUM COLLECTIONS, CONFECTIONS AND COMIC BOOKS, WITH MANUFACTURING FACILITIES IN THE UNITED STATES AND THE REPUBLIC OF IRELAND. [PHOTO} THE WORLD OF TOPPS PRODUCTS [LOGO OF GLOBE] [LOGO}TOPPS [PHOTOS] THE TOPPS COMPANY, INC. ONE WHITEHALL STREET NEW YORK, NY 10004-2109 PHONE: (212) 376-0300 o FAX: (212) 376-0573 - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- Page Letter to Stockholders 1 Financial Highlights 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Consolidated Financial Statements 11 Notes to Consolidated Financial Statements 16 Report of Independent Public Accountants 31 Market and Dividend Information 31 Selected Consolidated Financial Data 32 Directors, Officers, Stockholder and Other Information 33 To Our Stockholders Progress in many areas of the business during fiscal 1996 was overshadowed by the effects of a depressed domestic market for sports products. Net sales in total were virtually flat (up $100K) as compared with last year and net income fell from $15.7 million to $8.4 million. In short, an important segment of our business is still down but the year was marked by a number of positive developments within the Company. For example, highlights of fiscal 1996 include: a record year for confectionery sales; expansion of product lines and global reach through the acquisition of Merlin Publishing International Limited; successful entry into the mini-collectibles category; the opening of new subsidiaries in Canada and Mexico; significant reduction of pre-production costs; the formation of a joint venture with a technology company to produce CD-ROM sports products; and further strengthening of our management team. These plus other Company activities, achievements and areas of opportunity are described in some detail below. Collectible Picture Products Sports According to statistics compiled by the Sports Card Manufacturers' Association, in calendar 1995, sales of sports cards in the U.S. declined by over 25% from 1994, and by more than 40% over the last three years. The number of collectors has dropped significantly, and those that remain are spending less. There are several reasons for this: product and brand proliferation and overproduction beginning in the late 1980's have led to collector confusion and oversupply; labor strife and adverse publicity have left fans feeling disenfranchised; the growth of sports-related merchandise choices in the past few years has increased competition for consumer spending; and retailers, faced with declining category sales and increased complexity, have cut back on shelf space, inhibiting impulse sales. Consequently, the profitability of the sports business declined in fiscal 1996. Painful though it might be in the short term, our strategy was to protect sports card margins to the extent possible without risking the strength of our consumer brand franchises. We believe the negative trends will ultimately moderate and, when they do, we want to be poised to compete with our strong brands, excellent distribution and efficient operations. In the meantime, we will continue to take advantage of every possible opportunity to move ahead. Here are several examples of our efforts in that regard. BAZOOKA brand baseball cards, introduced last May, delivered an extra measure of fun to consumers by including bubble gum inside packages for the first time in five years and a game feature on every card back, all at a price point that even our youngest collectors could easily afford. The product was received well enough to merit a return this year, gum and all, with a new game that incorporates characters from BAZOOKA JOE comics. 1 Toward the end of our fiscal year, 1996 TOPPS Baseball, on sale in December 1995, was the hottest baseball product in the market. A special insert set of reprints of Mickey Mantle cards, part of our heritage, helped stimulate a great deal of collector interest and favorable press. Articles about the TOPPS brand and Mantle inserts appeared in Sports Illustrated, USA Today and The Wall Street Journal, among many others. Additional Mickey Mantle promotions, including giveaways of rare, valuable originals of his Topps cards and cards with previously unseen photography will be employed throughout the current baseball season. Several new technologies were introduced last year through our special insert cards. One in particular, "laser-cut," proved so popular with collectors that this year we plan to market an entirely new brand featuring this special technology. Fiscal 1997 will see a host of other new products as well, from a hobby-only brand named TOPPS GALLERY, to cards with gold-gilt edges and sets of TOPPS brand cards sold in packaging resembling mini cereal boxes. Each new product will be aimed at a particular segment of the market, as we continue efforts to create and position brands to satisfy the diverse preferences of the collector population. Underlying the marketing and promotional activities of fiscal 1996 was an attempt to encourage more fan involvement and interest in the sports themselves. Topps sponsored the collectibles show at the NFL's Pro Bowl, and secured exclusive rights to sell a special set of cards related to that event. We also sponsored the NHL's SuperSkills competition, a 27 city event culminating at the NHL All-Star game for which a special card set was produced as well. This year we expect to offer several interactive promotions and, since fiscal 1997 marks Topps' 40th anniversary of producing professional football cards, we will celebrate this rich history through special events and promotions. In summary, the sports card market has been contracting for the past couple of years, and, no doubt, fiscal 1997 will bear its own challenges. But with positive team and individual performances on the field, and no labor actions or shortened seasons off the field, it is our hope that more and more fans and collectors, old and new, will find their way to this great hobby. By offering an innovative product lineup and appealing brands, we will be well positioned to capture some lost ground and begin rebuilding a platform for profitable growth. Entertainment Results were brighter in our entertainment business, which is comprised of cards, comic books, and magazines. These products enjoyed substantial sales growth (well over 50%) versus fiscal 1995. One of the key contributors to this performance was the Star Wars franchise, continuing a three year trend of Topps successfully marketing this timeless property. We will continue in fiscal 1997 with exciting Star Wars new card products including a collection utilizing chromium technology under the popular TOPPS FINEST brand, plus a special product featuring original artwork created specifically for Topps by the 2 Hildebrandt brothers, two of the most widely regarded artists in the card and comic community. We are also planning to publish a 20th anniversary Star Wars magazine. Another success story involves The X-Files, a television property with ever-growing mystique and popularity. Our full line of comic books featuring this property sold very well all year long, with Topps trading card sets being similarly well received. Continuation of the comic book series and quarterly magazines in America, plus additional card sets both here and abroad, are expected to make a good showing in fiscal 1997. As this letter goes to press, we are actively booking orders for a Topps card collection based on the best selling children's book series Goosebumps. Scholastic is selling three million Goosebumps books per month (a record) and the TV show is topping the charts. We are also busy with two of this summer's anticipated movie blockbusters, Independence Day by Twentieth Century Fox and Dragonheart from MCA-Universal. And finally, Topps is going "Hollywood". Last year we reported that Warner Bros. had purchased an option on behalf of director Tim Burton for film and ancillary rights to Topps self-created property, MARS ATTACKS. We can now report that principal photography is almost complete, and a Christmas 1996 release date has been scheduled. Among others, the cast includes Jack Nicholson, Glenn Close, Pierce Brosnan and Annette Bening. Initially, Topps can benefit through sales of MARS ATTACKS card sets and comics based on the movie, as well as from royalties generated through licensing of the classic (i.e., non-movie based) MARS ATTACKS property. Toy and apparel licenses are already in place. Confectionery The confectionery business had record sales of $95.5 million in fiscal 1996, up 13.9% from fiscal 1995. Much of this growth is the result of bringing our core brands, particularly PUSH POP, to children overseas. We will continue efforts to market globally in fiscal 1997, and products such as RING POP and new TONGUE SUCKER should be prime beneficiaries of this strategy. Advertising and promotional support is planned for virtually all of our lollipop brands. The BAZOOKA line showed off its updated look in fiscal 1996, with a new logo and packaging that received favorable national media attention. Several changes are now underway to optimize this brand, including product configurations that target seasonal sales such as Halloween and back-to-school, new gum flavors, and completely new products bearing the BAZOOKA brand name. We are also preparing events and promotions for the brand's 50th anniversary which arrives in 1997. Company-Wide Activities International Expanding internationally continues to be one of the top priorities for the Company. Our acquisition of Merlin Publishing International Limited during fiscal 1996 provided a greater European infrastructure and critical mass beyond current Ireland operations. With 3 UK headquarters and subsidiaries in France, Italy, Spain, and the Netherlands (which serves Germany, among other countries), Merlin provides an excellent boost from which to grow sports, entertainment and confectionery brands overseas. To that end, we are adding full-time confectionery managers in Italy, France, and Germany early this year. In addition, the contribution of Merlin's sticker and album business can be improved by more selective product offerings and expansion of the sports business beyond present levels. Through its sales of Premier League Football collections in the United Kingdom, Merlin has demonstrated a superb ability to market to young consumers. Elsewhere, we have opened new subsidiaries in Canada and Mexico in fiscal 1996. Canada had a successful year and Mexico, which just recently came on line, is now set for progress in fiscal 1997. Additional subsidiaries and distribution/marketing partnerships are planned for parts of South America and the Pacific Rim. From a strategic standpoint, our initial aim is to get sufficient sales and profits from each target market to fund and establish offices on-site, which would be staffed by a strong team of international managers who, in the aggregate, will build a formidable global business. Operations Progress was also made on the operations side of the business. By coordinating the efforts of our manufacturing, sports, art, and logistics functions, a variety of aggressive programs were implemented or enhanced to realize cost savings. Doing so has become increasingly important as the complexity and competitiveness of the card market continue to spiral upward. For example, we managed to decrease our total sports card development costs even though the number of product releases expanded. This was accomplished through design and layout changes, rigorous vendor qualification, and implementation of more sophisticated systems for tracking costs through each step in the process. These improvements will have a greater financial impact in the new year, as we realize their annualized benefit and have the opportunity to refine changes still further. A number of other operational improvements were made in fiscal 1996. Obsolescence was decreased through improved forecasting and manufacturing changes; waste was reduced at our plant to the degree possible; costs of selected purchased materials were cut and freight costs were reduced. Additional programs which produce more savings and promote greater efficiency are essential and ongoing. Other New Products/New Business The Company constantly seeks to identify new growth opportunities which best leverage our corporate strengths and provide good returns on investment. In fiscal 1996, the most apparent of these was the acquisition of Merlin, which has already been discussed, but there are other signs of progress as well. 4 During the year Topps entered the mini-collectible category with a product called Puppy In My Pocket. Consumer response compelled us to develop additional entries, the next of which will be TOPPS BABY WILD ANIMALS, scheduled for sale both domestically and abroad in fiscal 1997. TV advertising tests begin in Europe early June. Last December, we entered into a joint venture agreement with the technology company, Data Systems & Software, Inc., to produce CD-ROM sports products. Our partners will furnish the programming, production, and technology expertise while Topps provides the brand name, sports knowledge, and certain useful marketing experience. First products from this venture should ship later this year and may strike a compelling chord with consumers; of course, only time will tell. In Conclusion A great deal of work went into producing the results described throughout this report. Once again, we thank the entire Topps team of employees here and overseas for their dedication and tireless efforts. We are also grateful to our customers, licensors, stockholders and suppliers for their valued support. For the Board of Directors May 22, 1996 Arthur T. Shorin John J. Langdon Chairman of the Board and President and Chief Executive Officer Chief Operating Officer 5 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- Year Ended ---------------------------------------- MARCH February February 2, 1996 25, 1995 26, 1994 (53 WEEKS) (52 weeks) (52 weeks) - -------------------------------------------------------------------------------- (In thousands of dollars, except share data) Net sales $ 265,495 $ 265,386 $ 268,047 - -------------------------------------------------------------------------------- Income from operations 16,571 26,924 45,930 - -------------------------------------------------------------------------------- Net income 8,394 15,747 26,592 - -------------------------------------------------------------------------------- Cash provided by operations 4,149 4,844 43,247 - -------------------------------------------------------------------------------- Working capital 31,278 30,917 23,624 - -------------------------------------------------------------------------------- Current ratio 138.6% 163.1% 138.1% - -------------------------------------------------------------------------------- Net property, plant and equipment 31,610 31,964 29,479 - -------------------------------------------------------------------------------- Stockholders' equity 81,850 73,869 66,955 - -------------------------------------------------------------------------------- Per share data: Net income $ .18 $ .33 $ .57 - -------------------------------------------------------------------------------- Book value 1.74 1.57 1.42 - -------------------------------------------------------------------------------- Weighted average shares outstanding 47,047,251 47,039,287 47,030,902 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Corporate Profiles - -------------------------------------------------------------------------------- The Topps Company, Inc. is an international marketer of entertainment products, principally collectible picture cards, sticker and album collections, confections and comic books, with manufacturing facilities in the United States and the Republic of Ireland. The Company, founded in 1938, created BAZOOKA brand bubble gum in 1947 and marketed its first TOPPS baseball cards in 1951. 6 - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- The following table sets forth, for the periods indicated, net sales by product group: Year Ended ------------------------------------- MARCH February February 2, 1996 25, 1995 26, 1994 (53 WEEKS) (52 weeks) (52 weeks) - ------------------------------------------------------------------------------- (In thousands of dollars) Collectible picture products $169,983 $181,541 $193,528 - ------------------------------------------------------------------------------- Confectionery products 95,512 83,845 74,519 - ------------------------------------------------------------------------------- Total $265,495 $265,386 $268,047 - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS Fiscal 1996 Versus 1995* The Company's net sales in 1996 of $265,495,000 were virtually even with those in 1995 of $265,386,000. The 1996 sales results were a combination of lower sales of collectible picture products offset by higher sales of confectionery products. Net sales of collectible picture products, which consist principally of sports cards, entertainment cards, comic books and the Merlin line of sticker and album collections acquired in July 1995, decreased 6.4% in 1996 to $169,983,000 from $181,541,000 in 1995. This decrease in sales was the result of both lower shipments and a higher rate of returns on sports card products, principally major league baseball and NBA basketball. Growth in sales of entertainment cards and comic books, as well as the inclusion of seven months of the Merlin business, helped offset the decrease in sports card products. Collectible picture products accounted for 64.0% of total net sales of the Company in 1996, versus 68.4% in 1995. According to industry statistics, the sports card category continued to contract in calendar 1995. The Company believes that the number of collectors declined and that those who remained spent less. There are several reasons for this: product and brand proliferation which led to consumer confusion and oversupply, labor strife which left fans feeling disenfranchised, a competitive rise in other sports-related merchandise choices and a reduction in retailer support. Although further declines may occur over the near term, the Company believes that these negative industry trends will moderate over the longer term. - -------------------------------------------------------------------------------- * Unless otherwise indicated, all date references to 1997, 1996, 1995 and 1994 refer to the fiscal years ending or ended March 1, 1997, March 2, 1996, February 25, 1995 and February 26, 1994, respectively. 7 Net sales of confectionery products, which include BAZOOKA brand bubble gum, RING POP and PUSH POP lollipops and other novelty candy products, increased 13.9% in 1996 to $95,512,000 from $83,845,000. This growth was the result of stronger lollipop sales internationally and the introduction of two new products, ROLLER POP and Puppy in my Pocket. The Company's confectionery business accounted for 36.0% of total 1996 net sales, compared to 31.6% in 1995. In 1997, the Company intends to increase its emphasis on the sales and profitability of its core confectionery products as well as to develop and market new products, when opportunities arise. Gross profit as a percentage of net sales decreased slightly to 30.4% in 1996 from 30.9% in 1995. This is the result of higher costs as a percentage of sales in our domestic business. In addition, profit performance was negatively impacted by minimum guarantee shortfalls of $2.8 million under certain of the Company's licensing agreements. The Company was successful in reducing the provision for inventory obsolescence through improved sales forecasting techniques and a reduction in production lead times. Royalties and other income net of expenses were $3,129,000 in 1996 as compared with $2,957,000 in 1995. The increase in 1996 was driven by licensing income which was partially offset by settlement costs resulting from a class action suit. In the future, other income net of expenses will be negatively impacted by the expiration of a long-term licensing agreement in Argentina and the lack of repetition of certain one-time income items which benefitted 1996. Selling, general and administrative expenses increased as a percentage of net sales to 25.3% in 1996 from 21.8% in 1995. This increase was driven by higher advertising and distribution spending stemming from the expansion of PUSH POP and RING POP in foreign markets, as well as by costs to reorganize and redirect the domestic sales force in order to increase the Company's focus on national accounts and hobby distributors. In 1997, the Company plans to step up domestic advertising levels behind RING POP and PUSH POP lollipops and to spend selectively to strengthen its sports card brand franchises. Advertising levels are expected to remain relatively high overseas as the Company continues its efforts to expand distribution, particularly in Europe and Latin America. The effective tax rate of 44.5% in 1996 reflected provisions for federal, state and local income taxes in accordance with statutory income tax rates. It exceeded the 42.5% tax rate in 1995 as a result of the Merlin acquisition. Net income decreased to $8,394,000, or $.18 per share in 1996, from $15,747,000, or $.33 per share in 1995, respectively. Fiscal 1995 Versus 1994 In 1995, the Company's net sales decreased 1.0% to $265,386,000 from $268,047,000 in 1994 as lower sales of collectible picture products were largely offset by increased sales of confectionery products. 8 Collectible picture products decreased 6.2% from $193,528,000 in 1994 to $181,541,000 in 1995. All components of collectible picture products were down versus the prior year with sports cards accounting for the largest portion. Baseball and hockey card sales, which were impacted by labor disputes, recorded the biggest percentage declines, with increases in basketball and football card sales offsetting approximately 70% of those declines. Sales of confectionery products increased 12.5% in 1995 to $83,845,000 from $74,519,000 in 1994. This increase resulted primarily from higher unit sales of lollipop products both internationally and in the U.S. Gross profit as a percentage of net sales decreased to 30.9% in 1995 from 34.9% in 1994. This decline in gross profit resulted from, among other things, higher product development costs and inventory obsolescence associated with sports card products. In addition, gross profit was negatively impacted by a $1.7 million provision related to the hockey royalty minimum guarantee. Royalties and other income were $2,957,000 in 1995 compared with $3,318,000 in 1994. The decrease in royalty income resulted primarily from lower sales of sports cards by the Company's Canadian licensee. During 1995, the Company negotiated with its licensee in Canada to remove collectible picture products from the license and accordingly, began marketing collectible picture products directly in Canada. Selling, general and administrative expenses increased as a percentage of net sales to 21.8% in 1995 from 19.0% in 1994. The increase in 1995 resulted primarily from increased advertising and promotional expenses in connection with the Company's baseball and basketball products. The effective tax rate was 42.5% in 1995 versus an effective rate of 42.3% in 1994. Net income decreased to $15,747,000, or $.33 per share in 1995, compared to $26,592,000, or $.57 per share in 1994. Quarterly Comparisons Management believes that quarter-to-quarter comparisons of sales and operating results are affected by a number of fluctuating factors, including the timing of product introductions and variations in shipping and factory scheduling requirements. Thus, annual sales and earnings amounts are unlikely to consist of equal quarterly portions. See Note 14 of Notes to Consolidated Financial Statements. Inflation The Company has been subject to price increases for materials, labor, royalty rates, utilities and services, which have been partially offset by effective buying of materials and by adjustment in the contents of finished products and their prices, as competition has permitted. 9 Liquidity and Capital Resources On June 30, 1995, the Company entered into a $65 million credit agreement (the "Credit Agreement") with a syndicate of banks which consisted of a $50 million term loan to finance the Merlin acquisition, a $2 million letter of credit facility and a $13 million revolving credit facility to be used for working capital and general corporate purposes. For the year ended March 2, 1996, interest rates on the outstanding balances were variable and were a function of short-term indices and the Company's consolidated leverage ratio. Beginning in April 1996 and subsequent to the fiscal year just ended, interest rates on half of the outstanding principal of the loan will be variable and a function of short-term indices and the Company's consolidated leverage ratio, while interest rates on the balance of the outstanding loan will be fixed for two years as a result of interest rate swap agreements and will be, therefore, a function of interest rates at the commencement of the swap transactions and the Company's consolidated leverage ratio. The Credit Agreement contains restrictions and prohibitions of a nature generally found in loan agreements of this type and requires the Company, among other things, to comply with certain financial covenants, limits the Company's ability to sell or acquire assets or borrow additional money (other than through the revolving facility), and prohibits the payment of dividends. The Credit Agreement is secured by a pledge of 65% of the stock of Merlin. As of March 2, 1996, the Company had $24,154,000 in cash, and $44,300,000 in debt as a result of the Merlin acquisition. Capital expenditures for fiscal 1996 totaled $2,147,000, the majority of which were related to the expansion of computer systems throughout the Company and repair and maintenance at the Company's manufacturing facilities in Pennsylvania and Ireland. Management believes that, in light of the Company's borrowing capacity, cash on hand as of March 2, 1996 and expected cash flow from operations, the Company has adequate cash to meet its working capital, capital expenditure and loan repayment requirements for the foreseeable future. 10 - -------------------------------------------------------------------------------- Consolidated Statements of Operations - -------------------------------------------------------------------------------- The Topps Company, Inc. and Subsidiaries (In thousands of dollars, except share data)
Year Ended ------------------------------------------- MARCH February February 2, 1996 25, 1995 26,1994 (53 WEEKS) (52 Weeks) (52 Weeks) - ------------------------------------------------------------------------------------------- NET SALES $ 265,495 $ 265,386 $ 268,047 - ------------------------------------------------------------------------------------------- Cost of sales 184,880 183,429 174,565 - ------------------------------------------------------------------------------------------- GROSS PROFIT ON SALES 80,615 81,957 93,482 - ------------------------------------------------------------------------------------------- Royalties and other income 3,129 2,957 3,318 - ------------------------------------------------------------------------------------------- 83,744 84,914 96,800 - ------------------------------------------------------------------------------------------- Selling, general and administrative expenses 67,173 57,990 50,870 - ------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 16,571 26,924 45,930 - ------------------------------------------------------------------------------------------- Interest income (expense), net (1,447) 461 157 - ------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 15,124 27,385 46,087 - ------------------------------------------------------------------------------------------- Provision for income taxes 6,730 11,638 19,495 - ------------------------------------------------------------------------------------------- NET INCOME $ 8,394 $ 15,747 $ 26,592 - ------------------------------------------------------------------------------------------- NET INCOME PER SHARE $ .18 $ .33 $ .57 - ------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 47,047,251 47,039,287 47,030,902 - -------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 11 - -------------------------------------------------------------------------------- Consolidated Balance Sheets - -------------------------------------------------------------------------------- The Topps Company, Inc. and Subsidiaries (In thousands of dollars, except share data) MARCH February 2, 1996 25, 1995 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- CURRENT ASSETS: - -------------------------------------------------------------------------------- Cash and cash equivalents $ 24,154 $ 17,785 - -------------------------------------------------------------------------------- Accounts receivable, less allowance for doubtful accounts of $888 (1996) and $875 (1995) 43,357 24,228 - -------------------------------------------------------------------------------- Inventories 27,887 27,222 - -------------------------------------------------------------------------------- Income tax receivable 3,008 552 - -------------------------------------------------------------------------------- Prepaid expenses and other current assets 13,865 10,158 - -------------------------------------------------------------------------------- Total current assets 112,271 79,945 - -------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- Land 581 581 - -------------------------------------------------------------------------------- Buildings and improvements 21,843 20,831 - -------------------------------------------------------------------------------- Machinery and equipment 30,808 28,683 - -------------------------------------------------------------------------------- Total property, plant and equipment 53,232 50,095 - -------------------------------------------------------------------------------- Less accumulated depreciation 21,622 18,131 - -------------------------------------------------------------------------------- Property, plant and equipment, net 31,610 31,964 - -------------------------------------------------------------------------------- INTANGIBLE ASSETS, net of amortization of $32,844 (1996) and $30,532 (1995) 70,447 22,901 - -------------------------------------------------------------------------------- OTHER ASSETS 2,799 1,514 - -------------------------------------------------------------------------------- TOTAL ASSETS $217,127 $136,324 - -------------------------------------------------------------------------------- 12 - -------------------------------------------------------------------------------- Consolidated Balance Sheets - -------------------------------------------------------------------------------- MARCH February 2, 1996 25, 1995 - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- CURRENT LIABILITIES: - ------------------------------------------------------------------------------- Accounts payable $ 28,848 $ 22,396 - ------------------------------------------------------------------------------- Accrued expenses and other liabilities 39,879 25,599 - ------------------------------------------------------------------------------- Income taxes payable 5,466 1,033 - ------------------------------------------------------------------------------- Current portion of long-term debt 6,800 -- - ------------------------------------------------------------------------------- Total current liabilities 80,993 49,028 - ------------------------------------------------------------------------------- LONG-TERM DEBT, less current portion 37,500 -- - ------------------------------------------------------------------------------- DEFERRED INCOME TAXES 11,192 9,630 - ------------------------------------------------------------------------------- OTHER LIABILITIES 5,592 3,797 - ------------------------------------------------------------------------------- Total liabilities 135,277 62,455 - ------------------------------------------------------------------------------- COMMITMENTS (SEE NOTE 15) STOCKHOLDERS' EQUITY: - ------------------------------------------------------------------------------- Preferred Stock, par value $.01 per share, authorized 10,000,000 shares, none issued -- -- - ------------------------------------------------------------------------------- Common Stock, par value $.01 per share, authorized 100,000,000 shares, issued 47,502,510 (1996) and 47,497,448 (1995) 475 475 - ------------------------------------------------------------------------------- Additional paid-in capital 16,812 16,792 - ------------------------------------------------------------------------------- Treasury Stock, 455,000 shares, at cost (6,120) (6,120) - ------------------------------------------------------------------------------- Retained earnings 69,719 61,325 - ------------------------------------------------------------------------------- Minimum pension liability adjustment (110) -- - ------------------------------------------------------------------------------- Cumulative adjustment due to foreign currency translation 1,074 1,397 - ------------------------------------------------------------------------------- Total stockholders' equity 81,850 73,869 - ------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 217,127 $ 136,324 - ------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements. 13 - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- The Topps Company, Inc. and Subsidiaries (In thousands of dollars)
Year Ended ---------------------------------- MARCH February February 2, 1996 25, 1995 26, 1994 (53 WEEKS) (52 Weeks) (52 Weeks) - ----------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED FOR) OPERATIONS: - ----------------------------------------------------------------------------------------------- Net income $ 8,394 $ 15,747 $ 26,592 - ----------------------------------------------------------------------------------------------- Add (subtract) non-cash items included in income: - ----------------------------------------------------------------------------------------------- Depreciation and amortization 5,562 5,216 5,017 - ----------------------------------------------------------------------------------------------- Deferred taxes on income (912) 1,072 775 - ----------------------------------------------------------------------------------------------- Net effect of changes in: - ----------------------------------------------------------------------------------------------- Receivables 1,831 (1,780) 3,176 - ----------------------------------------------------------------------------------------------- Inventories 597 (1,407) 2,267 - ----------------------------------------------------------------------------------------------- Income tax receivable (2,456) (552) 14,094 - ----------------------------------------------------------------------------------------------- Prepaid expenses and other current assets (2,583) (1,413) (278) - ----------------------------------------------------------------------------------------------- Other assets (1,389) (46) (1,468) - ----------------------------------------------------------------------------------------------- Payables and other current liabilities (5,287) (12,920) (6,989) - ----------------------------------------------------------------------------------------------- Other 392 927 61 - ----------------------------------------------------------------------------------------------- Cash provided by operations 4,149 4,844 43,247 - ----------------------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES: - ----------------------------------------------------------------------------------------------- Additions to property, plant and equipment (2,147) (4,945) (4,205) - ----------------------------------------------------------------------------------------------- Purchase of Merlin, net of cash acquired (39,953) -- -- - ----------------------------------------------------------------------------------------------- Cash used for investing activities (42,100) (4,945) (4,205) - ----------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES: - ----------------------------------------------------------------------------------------------- Proceeds from borrowing 50,000 -- -- - ----------------------------------------------------------------------------------------------- Reduction of debt (5,700) -- (12,000) - ----------------------------------------------------------------------------------------------- Dividends paid -- (9,878) (13,169) - ----------------------------------------------------------------------------------------------- Exercise of employee stock options 20 27 27 - ----------------------------------------------------------------------------------------------- Cash provided by (used for) financing activities 44,320 (9,851) (25,142) - ----------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH 6,369 (9,952) 13,900 - ----------------------------------------------------------------------------------------------- CASH AT BEGINNING OF YEAR 17,785 27,737 13,837 - ----------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 24,154 $ 17,785 $ 27,737 - ----------------------------------------------------------------------------------------------- Interest paid $ 2,217 $ 130 $ 295 - ----------------------------------------------------------------------------------------------- Income taxes paid $ 10,587 $ 10,941 $ 18,422 - -----------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 14 - -------------------------------------------------------------------------------- Consolidated Statements of Stockholders' Equity - -------------------------------------------------------------------------------- The Topps Company, Inc. and Subsidiaries (In thousands of dollars)
Cumulative Adjustment Minimum Due to Additional Pension Foreign Common Paid-in Treasury Retained Liability Currency Total Stock Capital Stock Earnings Adjustment Translation - ------------------------------------------------------------------------------------------------------------------------------------ Balance at February 27, 1993 $ 54,366 $ 475 $ 16,738 $ (6,120) $ 42,033 $ -- $ 1,240 - ------------------------------------------------------------------------------------------------------------------------------------ Exercise of employee stock options 27 -- 27 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Translation adjustment (332) -- -- -- -- -- (332) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends paid (13,169) -- -- -- (13,169) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Minimum pension liability adjustment (529) -- -- -- -- (529) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net income 26,592 -- -- -- 26,592 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Balance at February 26, 1994 66,955 475 16,765 (6,120) 55,456 (529) 908 - ------------------------------------------------------------------------------------------------------------------------------------ Exercise of employee stock options 27 -- 27 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Translation adjustment 489 -- -- -- -- -- 489 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends paid (9,878) -- -- -- (9,878) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Minimum pension liability adjustment 529 -- -- -- -- 529 -- - ------------------------------------------------------------------------------------------------------------------------------------ Net income 15,747 -- -- -- 15,747 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Balance at February 25, 1995 73,869 475 16,792 (6,120) 61,325 -- 1,397 - ------------------------------------------------------------------------------------------------------------------------------------ Exercise of employee stock options 20 -- 20 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Translation adjustment (323) -- -- -- -- -- (323) - ------------------------------------------------------------------------------------------------------------------------------------ Minimum pension liability adjustment (110) -- -- -- -- (110) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net income 8,394 -- -- -- 8,394 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT MARCH 2, 1996 $ 81,850 $ 475 $ 16,812 $ (6,120) $ 69,719 $ (110) $ 1,074 - ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 15 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES o The consolidated financial statements include the accounts of the Company, Topps Ireland Limited ("TIL"), a wholly owned subsidiary incorporated in the Republic of Ireland, Topps Canada, Inc. ("Canada"), a wholly owned subsidiary incorporated under the Canadian Business Corporations Act and Merlin Publishing International Limited ("Merlin"), a wholly owned subsidiary incorporated in the United Kingdom. All intercompany items and transactions have been eliminated in consolidation. The Company and its subsidiaries, with the exception of Merlin, have fiscal years which end on the Saturday closest to the end of February. Merlin's fiscal year ends on January 31st. o Asset and liability accounts of TIL, Canada and Merlin are translated at the current exchange rate at the balance sheet date and income items are translated at the average exchange rate for the period. Resulting translation adjustments are reflected as a separate component of stockholders' equity. Realized gains and losses on all foreign exchange transactions are reported in income. TIL and Merlin enter into foreign currency forward sales and purchase contracts in order to hedge exposure from transactions denominated in foreign currencies. o The Company considers investments in highly liquid debt instruments with a maturity of three months or less to be cash equivalents. o Inventories are stated at lower of cost or market. Cost is determined on the first-in, first-out basis. o Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method. Estimated useful lives in computing depreciation are twenty-five years for buildings and three to twelve years for machinery and equipment. Major additions and betterments are capitalized and depreciated over the estimated useful lives of the related assets. Maintenance, repairs and minor improvements are charged to expense as incurred. The cost and related accumulated depreciation of fixed assets which are sold or otherwise disposed of are removed from the accounts and any gain or loss is included in income. o Intangible assets include trademarks, the value of sports, entertainment and proprietary product rights and goodwill (the excess of the purchase price over the estimated fair value of identifiable net assets acquired) associated with the Merlin acquisition. Amortization is by the straight-line method over estimated lives of up to forty years. Management evaluates the recoverability of intangible assets based on projections of future earnings on an undiscounted basis, attributable to the individual assets acquired. 16 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- o Sales are recorded upon shipment of product. Sales made on a returnable basis are recorded net of provisions for estimated returns. These estimates are revised, as necessary, to reflect actual experience and market conditions. o The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the reporting of assets and liabilities as of the dates of the financial statements and revenues and expenses during the reporting period. These estimates primarily relate to provision for sales returns, allowance for doubtful accounts and inventory obsolescence. Actual results could differ from these estimates. o In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This standard is effective for the Company's financial statements beginning in fiscal 1997. SFAS No. 121 establishes the accounting for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used for long-lived assets and certain identifiable intangibles to be disposed of. In the opinion of the Company's management, it is not anticipated that the adoption of SFAS No. 121 will have a material effect on the results of operations of the Company. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". The new standard defines a fair value method of accounting for the issuance of stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are not required, to adopt the fair value method of accounting for employee stock-based transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" , but are required to disclose in a note to the financial statements pro forma net income and per share amounts as if the company had applied the new method of accounting. SFAS No. 123 also requires increased disclosure regarding the measurement and recognition of compensation for employee stock-based arrangements. The Company has elected to continue to account for such transactions under APB No. 25 and will disclose the required pro forma effect on net income and income per share beginning in 1997. o Certain items in the prior years' financial statements have been reclassified to conform with the current year's presentation. 17 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 2 - ACQUISITION On July 6, 1995, the Company completed its acquisition of Merlin, a U.K.-based publisher and marketer of sticker and album collections for $46,244,700 in cash. The acquisition was accounted for under the purchase method. The purchase price was allocated to the net tangible and intangible assets acquired based on estimated fair values as of year end. The difference between the purchase price and the related fair values of net assets acquired represents goodwill which is being amortized on a straight-line basis over estimated useful lives of up to forty years. The following unaudited pro forma information presents the results of operations of the Company as if the acquisition of Merlin had been consummated as of the beginning of the periods presented. The pro forma information does not purport to be indicative of what would have occurred had the acquisition been made as of these dates or of the results which may occur in the future. Year Ended --------------------------- March February 2, 1996 25, 1995 (53 weeks) (52 weeks) - -------------------------------------------------------------------------------- (In thousands of dollars) Net sales $300,558 $307,014 - -------------------------------------------------------------------------------- Net income 7,819 14,983 - -------------------------------------------------------------------------------- Net income per share 0.17 0.32 - -------------------------------------------------------------------------------- NOTE 3 - INVENTORIES March February 2, 1996 25, 1995 - -------------------------------------------------------------------------------- (In thousands of dollars) Raw materials $ 8,581 $ 9,683 - -------------------------------------------------------------------------------- Work in process 3,221 3,738 - -------------------------------------------------------------------------------- Finished products 16,085 13,801 - -------------------------------------------------------------------------------- Total $ 27,887 $ 27,222 - -------------------------------------------------------------------------------- 18 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 4 - INTANGIBLE ASSETS March February 2, 1996 25, 1995 - -------------------------------------------------------------------------------- (In thousands of dollars) Value of sports, entertainment and proprietary products $ 36,635 $ 26,590 - -------------------------------------------------------------------------------- Goodwill 65,691 26,843 - -------------------------------------------------------------------------------- Other intangible assets 965 -- - -------------------------------------------------------------------------------- Less: accumulated amortization (32,844) (30,532) - -------------------------------------------------------------------------------- Total $ 70,447 $ 22,901 - -------------------------------------------------------------------------------- NOTE 5 - ACCRUED EXPENSES AND OTHER LIABILITIES March February 2, 1996 25, 1995 - -------------------------------------------------------------------------------- (In thousands of dollars) Royalties $ 4,636 $ 4,373 - -------------------------------------------------------------------------------- Employee compensation 3,477 3,356 - -------------------------------------------------------------------------------- Provision for estimated losses on sales returns 22,123 12,921 - -------------------------------------------------------------------------------- Other 9,643 4,949 - -------------------------------------------------------------------------------- Total $ 39,879 $ 25,599 - -------------------------------------------------------------------------------- NOTE 6 - DEPRECIATION AND AMORTIZATION Year Ended --------------------------------------- March February February 2, 1996 25, 1995 26, 1994 (53 weeks) (52 weeks) (52 weeks) - -------------------------------------------------------------------------------- (In thousands of dollars) Depreciation expense $3,146 $2,945 $2,746 - -------------------------------------------------------------------------------- Amortization of intangible assets 2,312 2,271 2,271 - -------------------------------------------------------------------------------- Amortization - other 104 -- -- - -------------------------------------------------------------------------------- Total $5,562 $5,216 $5,017 - -------------------------------------------------------------------------------- 19 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 7 - LONG-TERM DEBT March February 2, 1996 25, 1995 - -------------------------------------------------------------------------------- (In thousands of dollars) Term loan $ 44,300 $ -- - -------------------------------------------------------------------------------- Less: current portion (6,800) -- - -------------------------------------------------------------------------------- Total $ 37,500 $ -- - -------------------------------------------------------------------------------- The scheduled repayment of debt is as follows: FYE (In thousands of dollars) - -------------------------------------------------------------------------------- 1997 $ 6,800 - -------------------------------------------------------------------------------- 1998 10,000 - -------------------------------------------------------------------------------- 1999 10,000 - -------------------------------------------------------------------------------- 2000 11,250 - -------------------------------------------------------------------------------- 2001 6,250 - -------------------------------------------------------------------------------- Total $ 44,300 - -------------------------------------------------------------------------------- In connection with the acquisition of Merlin (see Note 2), the Company entered into a bank credit agreement ("Credit Agreement" ) to obtain funds for the purchase. The Credit Agreement provided for a $50,000,000 term loan, payable in quarterly installments, a $2,000,000 letter of credit facility ($1,500,000 of which was outstanding as of March 2, 1996) and availability of a $13,000,000 revolving credit facility (none of which was outstanding as of March 2, 1996) all maturing on July 6, 2000. The Credit Agreement contains certain restrictive covenants concerning indebtedness, capital expenditures, dividends, treasury share acquisitions, interest coverage and operating profit, all as defined in the Credit Agreement. The Company was in compliance with all such covenants at March 2, 1996. Interest on the Company's borrowings has been computed at LIBOR rates averaging 5.82% for the period ended March 2, 1996 plus the applicable margin of 1.25%. A fee of .375% is charged on the unused balance of the letter of credit and revolving credit facilities. 20 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 8 - INCOME TAXES U.S. and foreign operations contributed to income before income taxes as follows: Year Ended ------------------------------------------ March February February 2, 1996 25, 1995 26, 1994 (53 weeks) (52 weeks) (52 weeks) - -------------------------------------------------------------------------------- (In thousands of dollars) United States $ 7,689 $26,226 $44,766 - -------------------------------------------------------------------------------- Ireland 2,565 1,159 1,321 - -------------------------------------------------------------------------------- United Kingdom 4,650 -- -- - -------------------------------------------------------------------------------- Canada 220 -- -- - -------------------------------------------------------------------------------- TOTAL $15,124 $27,385 $46,087 - -------------------------------------------------------------------------------- Provision for income taxes consists of: Year Ended ------------------------------------------ March February February 2, 1996 25, 1995 26, 1994 (53 weeks) (52 weeks) (52 weeks) - -------------------------------------------------------------------------------- (In thousands of dollars) Current income taxes: - -------------------------------------------------------------------------------- Federal $ 2,988 $ 8,043 $12,942 - -------------------------------------------------------------------------------- Foreign 3,317 92 952 - -------------------------------------------------------------------------------- State and local 899 2,550 4,826 - -------------------------------------------------------------------------------- Total current 7,204 10,685 18,720 - -------------------------------------------------------------------------------- Deferred income taxes: - -------------------------------------------------------------------------------- Federal (171) 806 994 - -------------------------------------------------------------------------------- State and local (303) 147 (219) - -------------------------------------------------------------------------------- Total deferred (474) 953 775 - -------------------------------------------------------------------------------- Total income tax expense $ 6,730 $11,638 $19,495 - -------------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The reasons for the difference between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before provision for income taxes are as follows: Year Ended ------------------------------------------ March February February 2, 1996 25, 1995 26, 1994 (53 weeks) (52 weeks) (52 weeks) - -------------------------------------------------------------------------------- (In thousands of dollars) Computed expected tax provision: $ 5,293 $ 9,584 $16,114 - -------------------------------------------------------------------------------- Increase (decrease) in taxes resulting from: - -------------------------------------------------------------------------------- State and local taxes, net of federal tax benefit 588 1,753 2,994 - -------------------------------------------------------------------------------- Operating results of foreign subsidiaries 316 (266) 311 - -------------------------------------------------------------------------------- Goodwill and other permanent differences 533 567 76 - -------------------------------------------------------------------------------- $ 6,730 $11,638 $19,495 - -------------------------------------------------------------------------------- The components of deferred income tax assets and liabilities are as follows: Year Ended ------------------------------------------ March February February 2, 1996 25, 1995 26, 1994 - -------------------------------------------------------------------------------- (In thousands of dollars) Deferred income tax assets (included in prepaid expenses and other current assets): - -------------------------------------------------------------------------------- Provision for estimated losses on sales returns $ 2,599 $ 3,641 $ 4,468 - -------------------------------------------------------------------------------- Deferred income tax liabilities: Depreciation $ 4,668 $ 4,349 $ 4,254 - -------------------------------------------------------------------------------- Undistributed earnings - foreign subsidiaries 4,759 2,642 2,446 - -------------------------------------------------------------------------------- Amortization and other 1,765 2,639 2,685 - -------------------------------------------------------------------------------- Total deferred income tax liabilities $11,192 $ 9,630 $ 9,385 - -------------------------------------------------------------------------------- 22 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 9 - EMPLOYEE BENEFIT PLANS Retirement Plans The Company has a trusteed non-contributory defined benefit retirement plan covering substantially all domestic non-bargaining unit personnel. Plan benefits are based on years of service and the employee's average compensation in the 60 consecutive months which produce the highest average within the last 120 months of employment. The Company funds pension costs in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Plan assets consist of high-quality, marketable fixed income and equity securities. The following table sets forth the retirement plan's funded status as determined by an independent actuary:
March February February 2, 1996 25, 1995 26, 1994 - ----------------------------------------------------------------------------------- (In thousands of dollars) Actuarial present value of benefit obligation: Vested $ 12,200 $ 9,500 $ 9,500 - ----------------------------------------------------------------------------------- Non-vested 500 500 600 - ----------------------------------------------------------------------------------- Accumulated benefit obligation $ 12,700 $ 10,000 $ 10,100 - ----------------------------------------------------------------------------------- Projected benefit obligation $ 16,350 $ 13,000 $ 13,250 - ----------------------------------------------------------------------------------- Plan assets at market value (12,050) (10,400) (9,100) - ----------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 4,300 2,600 4,150 - ----------------------------------------------------------------------------------- Unrecognized net loss (4,280) (3,053) (4,252) - ----------------------------------------------------------------------------------- Unrecognized transition asset 320 365 573 - ----------------------------------------------------------------------------------- Minimum liability 310 -- 529 - ----------------------------------------------------------------------------------- Accrued (prepaid) pension liability $ 650 $ (88) $ 1,000 - ----------------------------------------------------------------------------------- Net pension expense included in the following components: - ----------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 600 $ 580 $ 574 - ----------------------------------------------------------------------------------- Interest cost on projected benefit obligation 1,150 963 1,010 - ----------------------------------------------------------------------------------- Actual return on plan assets (1,720) (502) (676) - ----------------------------------------------------------------------------------- Net amortization and deferral 855 (185) 80 - ----------------------------------------------------------------------------------- Net pension expense $ 885 $ 856 $ 988 - -----------------------------------------------------------------------------------
23 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The Company also has defined benefit agreements, which are non-qualified, with certain retirees and the Chairman and Chief Executive Officer. The table below sets forth the funded status as determined by an independent actuary: MARCH February 2, 1996 25, 1995 - ------------------------------------------------------------------------------- (In thousands of dollars) Present value of vested benefit obligation $ 3,250 $ 2,350 - ------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 3,900 3,300 - ------------------------------------------------------------------------------- Unrecognized net loss (375) -- - ------------------------------------------------------------------------------- Unrecognized transition obligation (1,040) (1,120) - ------------------------------------------------------------------------------- Minimum liability 765 -- - ------------------------------------------------------------------------------- Accrued pension liability 3,250 2,180 - ------------------------------------------------------------------------------- Net pension expense $ 380 $ 324 - ------------------------------------------------------------------------------- In accordance with FASB No. 87, the Company has recorded an additional minimum pension liability for underfunded plans of $1,075,000 at March 2, 1996, representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities. Accordingly, $965,000 of this amount was recognized as an intangible asset, and $110,000 was recognized as a reduction to retained earnings. March February February 2, 1996 25, 1995 26, 1994 - -------------------------------------------------------------------------------- (In thousands of dollars) Principal actuarial assumptions used for measurement of projected benefit obligations were: - -------------------------------------------------------------------------------- Discount rate 7.5% 8.5% 7.5% - -------------------------------------------------------------------------------- Rate of increase in future compensation level 5.0% 5.0% 5.0% - -------------------------------------------------------------------------------- Long-term rate of return on assets 9.0% 8.0% 8.0% - -------------------------------------------------------------------------------- The Company is a participant in a multi-employer defined contribution pension plan covering domestic bargaining unit employees. In addition, the Company sponsors a defined contribution plan, which qualifies under Sections 401(a) and 401(k) of the Internal Revenue Code. All non-bargaining unit employees are eligible to participate; participation in the plan is optional. The Company does not contribute to the plan. Pension expense for all plans was $1,780,000 (1996), $2,238,000 (1995) and $1,874,000 (1994). 24 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Postretirement Health Care Benefit Plan The Company provides certain postretirement health care benefits for employees who meet minimum age and service requirements. The following tables set forth the plan's status as determined by an independent actuary:
March February February 2, 1996 25, 1995 26, 1994 - ------------------------------------------------------------------------------------ (In thousands of dollars) Accumulated postretirement benefit obligation: - ----------------------------------------------------------------------------------- Retirees $ 3,700 $ 3,300 $ 3,025 - ----------------------------------------------------------------------------------- Active employees 3,500 3,100 2,953 - ----------------------------------------------------------------------------------- Total 7,200 6,400 5,978 - ----------------------------------------------------------------------------------- Unrecognized net transition obligation (4,100) (4,321) (4,561) - ----------------------------------------------------------------------------------- Unrecognized net loss (1,292) (971) (855) - ----------------------------------------------------------------------------------- Accrued postretirement obligation $ 1,808 $ 1,108 $ 562 - ----------------------------------------------------------------------------------- The components of the net periodic postretirement benefit cost are as follows: - ----------------------------------------------------------------------------------- Service cost $ 170 $ 200 $ 165 - ----------------------------------------------------------------------------------- Interest cost 510 453 414 - ----------------------------------------------------------------------------------- Net amortization and deferral 220 166 240 - ----------------------------------------------------------------------------------- Postretirement benefit expense $ 900 $ 819 $ 819 - ----------------------------------------------------------------------------------- Actual assumptions used to measure the postretirement benefit cost are as follows: - ----------------------------------------------------------------------------------- Discount rate 7.5% 8.5% 7.5% - ----------------------------------------------------------------------------------- Health care trend rate Year end 10.5% 12.0% 13.5% - ----------------------------------------------------------------------------------- Decreasing to year 2010 6.0% 6.0% 6.0% - ----------------------------------------------------------------------------------- Effects of increasing the health care trend rates by one percentage point in each year are summarized below: - ----------------------------------------------------------------------------------- Increase in accumulated postretirement benefit obligation $ 1,200 $ 1,050 $ 973 - ----------------------------------------------------------------------------------- Increase in the aggregate of service cost and interest cost 140 134 117 - -----------------------------------------------------------------------------------
25 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 10 - STOCK OPTION PLANS Employee Plan On March 30, 1987, the Company's Board of Directors and the Company's stockholders approved the Company's 1987 Stock Option Plan (the " Plan" ) to attract and retain key personnel. On June 24, 1992, the Company's stockholders approved an amendment to the Plan that increases the aggregate number of shares of Common Stock reserved for issuance under the Plan by an amount equal to three-quarters of one percent (.75%) of the aggregate total number of shares outstanding on the last day of each fiscal year. The Plan provides for the granting of both non-qualified stock options and incentive stock options within the meaning of Section 422A of the Internal Revenue Code. Under the Plan, no options may be granted after March 29, 1997. Changes in outstanding options were as follows:
Available Option for Grant Outstanding Unexercisable Exercisable Price per Share - ------------------------------------------------------------------------------------------------------------------------------------ Balance February 27, 1993 1,130,300 1,341,212 412,000 929,212 $3.850 - $17.625 - ------------------------------------------------------------------------------------------------------------------------------------ Exercisable during year (223,500) 223,500 14.500 - 17.625 - ------------------------------------------------------------------------------------------------------------------------------------ Granted (712,500) 712,500 712,500 8.000 - 9.125 - ------------------------------------------------------------------------------------------------------------------------------------ Cancelled 65,750 (65,750) (46,500) (19,250) 8.000 - 17.625 - ------------------------------------------------------------------------------------------------------------------------------------ Exercised (6,750) (6,750) 4.037 - ------------------------------------------------------------------------------------------------------------------------------------ Annual increase 352,768 - ------------------------------------------------------------------------------------------------------------------------------------ Balance February 26, 1994 836,318 1,981,212 854,500 1,126,712 3.850 - 17.625 - ------------------------------------------------------------------------------------------------------------------------------------ Exercisable during year (457,500) 457,500 8.000 - 17.625 - ------------------------------------------------------------------------------------------------------------------------------------ Granted (461,000) 461,000 461,000 5.313 - 6.375 - ------------------------------------------------------------------------------------------------------------------------------------ Cancelled 63,500 (63,500) (23,000) (40,500) 8.000 - 16.250 - ------------------------------------------------------------------------------------------------------------------------------------ Exercised (6,650) (6,650) 4.037 - ------------------------------------------------------------------------------------------------------------------------------------ Annual increase 352,818 - ------------------------------------------------------------------------------------------------------------------------------------ Balance February 25, 1995 791,636 2,372,062 835,000 1,537,062 3.850 - 17.625 - ------------------------------------------------------------------------------------------------------------------------------------ Exercisable during year (455,666) 455,666 - ------------------------------------------------------------------------------------------------------------------------------------ Granted (864,000) 864,000 864,000 5.000 - 10.250 - ------------------------------------------------------------------------------------------------------------------------------------ Cancelled 73,250 (73,250) (32,000) (41,250) 5.3125 - 17.625 - ------------------------------------------------------------------------------------------------------------------------------------ Exercised (5,062) (5,062) 3.850 - ------------------------------------------------------------------------------------------------------------------------------------ Annual increase 352,856 - ------------------------------------------------------------------------------------------------------------------------------------ Balance March 2, 1996 353,742 3,157,750 1,211,334 1,946,416 $4.037-$17.625 - ------------------------------------------------------------------------------------------------------------------------------------
26 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Director Plan On June 22, 1994, the Company's stockholders approved the Company's 1994 Non-employee Director Stock Option Plan (the "Director Plan" ) to attract and retain the services of qualified people who are neither employees nor officers of the Company as members of the Board of Directors. The Director Plan authorized the grant of non-qualified options up to an aggregate of 490,000 shares of Common Stock. Under this Plan, no options may be granted after June 2003. A summary of activity follows:
Available Option Description for Grant Outstanding Unexercisable Exercisable Price per Share - ------------------------------------------------------------------------------------------------------------------------------------ Plan as adopted 490,000 - ----------------------------------------------------------------------------------------------------------------------------------- Granted (49,000) 49,000 49,000 $7.125 - ----------------------------------------------------------------------------------------------------------------------------------- Balance February 25, 1995 441,000 49,000 49,000 $7.125 - ----------------------------------------------------------------------------------------------------------------------------------- Granted (42,000) 42,000 42,000 $6.375 - ----------------------------------------------------------------------------------------------------------------------------------- Exercisable (49,000) 49,000 $7.125 - ----------------------------------------------------------------------------------------------------------------------------------- Cancelled (7,000) (7,000) $7.125 - ----------------------------------------------------------------------------------------------------------------------------------- Balance March 2, 1996 399,000 84,000 42,000 42,000 $6.375 - $7.125 - -----------------------------------------------------------------------------------------------------------------------------------
Stock options are not considered in the computation of earnings per share because dilution from assumed exercise is not material. NOTE 11 - CAPITAL STOCK The Company has a Shareholder Rights Plan which entitles stockholders, in certain circumstances, to purchase one one-hundredth of a share of the Company's Series A Junior Participating Preferred Stock at an exercise price of $62 for each share of Common Stock owned. The Shareholder Rights Plan is intended to protect the interests of the Company's stockholders in the event the Company is confronted with coercive or unfair takeover tactics. In connection with a 1994 agreement between the Company and its President and Chief Operating Officer, the Company issued 100,000 Stock Appreciation Rights, vesting at the rate of 20,000 per year, commencing on March 30, 1995, at base prices ranging from $7.00 to $10.25. The Company will make payment for the difference, if any, between the average market price, as defined, and the applicable base price on the first business day following the applicable vesting date. In connection with an advisory agreement entered into between the Company and Creative Artists Agency, Inc., ("CAA" ), which was terminated on November 30, 1995, options to acquire 866,667 shares of Common Stock at an exercise price of $8.00 per share were issued to CAA. These fully vested options will expire on April 1, 2003. 27 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 12 - GEOGRAPHIC AREA INFORMATION Net sales to unaffiliated customers and income from operations, as presented below, are based on the locations of the ultimate customer. Income from operations is defined as total net sales less operating expenses, depreciation and amortization. Identifiable assets, as presented below, are those assets located in each geographic area. Year Ended ------------------------------------- March February February 2, 1996 25, 1995 26, 1994 - -------------------------------------------------------------------------------- (In thousands of dollars) Net sales United States $188,818 $236,829 $245,614 - -------------------------------------------------------------------------------- Europe 62,161 23,337 18,037 - -------------------------------------------------------------------------------- Other 14,516 5,220 4,396 - -------------------------------------------------------------------------------- $265,495 $265,386 $268,047 - -------------------------------------------------------------------------------- Income from operations United States $ 10,123 $ 25,413 $ 44,173 - -------------------------------------------------------------------------------- Europe 5,794 1,040 1,116 - -------------------------------------------------------------------------------- Other 654 471 641 - -------------------------------------------------------------------------------- $ 16,571 $ 26,924 $ 45,930 - -------------------------------------------------------------------------------- Identifiable assets United States $163,145 $121,158 $131,222 - -------------------------------------------------------------------------------- Europe 51,616 15,166 10,455 - -------------------------------------------------------------------------------- Other 2,366 -- -- - -------------------------------------------------------------------------------- $217,127 $136,324 $141,677 - -------------------------------------------------------------------------------- NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, " Disclosures About Fair Value of Financial Instruments ". These estimates have been determined by the Company using available market information and appropriate valuation techniques based on information as of March 2, 1996. As considerable judgment is inherent in the development of these estimates, they are not necessarily indicative of the amounts that the Company could realize in the current market exchange. 28 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The recorded amounts and fair values are as follows:
March 2, 1996 February 25, 1995 -------------------------------------- Recorded Fair Recorded Fair Amount Value Amount Value - ------------------------------------------------------------------------------------------ (In thousands of dollars) Assets: - ----------------------------------------------------------------------------------------- Cash and equivalents $24,154 $24,154 $17,785 $17,785 - ----------------------------------------------------------------------------------------- Prepaid expenses and other current assets 13,865 13,114 10,158 9,073 - ----------------------------------------------------------------------------------------- Liabilities: - ----------------------------------------------------------------------------------------- Accounts payable 28,848 28,848 23,396 23,396 - ----------------------------------------------------------------------------------------- Accrued expenses and other current liabilities 39,879 39,879 25,599 25,599 - ----------------------------------------------------------------------------------------- Current portion of long-term debt 6,800 6,800 -- -- - ----------------------------------------------------------------------------------------- Long-term debt 37,500 37,500 -- -- - ----------------------------------------------------------------------------------------- Foreign currency forward contracts 20,043 20,274 18,013 18,078 - -----------------------------------------------------------------------------------------
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
1996 1995 ----------------------------------------------------------------------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th - --------------------------------------------------------------------------------------------------------------------------- (In thousands of dollars, except share data) Net sales $ 67,432 $ 60,661 $ 69,458 $ 67,944 $ 94,498 $ 61,348 $ 52,937 $ 56,603 - --------------------------------------------------------------------------------------------------------------------------- Gross profit on sales 23,198 18,538 19,528 19,351 36,690 15,618 13,808 15,841 - --------------------------------------------------------------------------------------------------------------------------- Income from operations 8,003 2,774 2,672 3,122 18,804 4,285 2,503 1,332 - --------------------------------------------------------------------------------------------------------------------------- Net income 4,640 1,005 1,297 1,452 10,746 2,488 1,484 1,029 - --------------------------------------------------------------------------------------------------------------------------- Net income per share $ .10 $ .02 $ .03 $ .03 $ .23 $ .05 $ .03 $ .02 - ---------------------------------------------------------------------------------------------------------------------------
A portion of the second quarter of fiscal 1996, as well as the third and fourth quarters of fiscal 1996 include Merlin, acquired in July 1995. 29 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 15 - COMMITMENTS AND OTHER MATTERS o Future minimum payments under non-cancellable leases which extend into the year 2010 are $1,605,000 (1997), $1,494,000 (1998), $1,494,000 (1999), $1,574,000 (2000), $1,406,000 (2001) and $10,806,000 thereafter. o Future minimum payments required under the Company's sports contracts, with various expiration dates extending into 2000 are $19,185,000 (1997), $15,057,800 (1998), $5,879,600 (1999) and $1,666,700 (2000). o Total royalty expense under the Company's sports and entertainment o licensing contracts was $34,614,000 (1996) $35,967,000 (1995) and $41,898,000 (1994). Included in 1994 was a $5,000,000 charge in connection with the settlement of an arbitration between the Company and the Major League Baseball Players Association. o Advertising expenses included in selling, general and administrative expenses amounted to $13,488,000 (1996), $10,805,000 (1995) and $7,766,000 (1994). o Included in other expenses for 1996 is a $500,000 charge related to the estimated cost of settlement of a class action suit, net of $1,965,000 insurance recovery which was received and included in cash at March 2, 1996. Also included in accrued expenses is $2,465,000, representing the full amount of the estimated settlement. o The Company is a defendant in several civil actions which are routine and incidental to its business. In management's opinion, after consultation with legal counsel, settlement of these actions will not have a material adverse affect on the Company's consolidated financial position or results of operations. o Two of the Company's subsidiaries, TIL and Merlin, transact business in many countries, utilizing many different currencies. They are thus exposed to the affect of exchange rate fluctuations on sales and purchase transactions denominated in currencies other than their functional currency. TIL and Merlin enter into foreign currency forward contracts to manage these exposures and to minimize the effects of foreign currency transactions on their cash flow. Such contracts are entered into primarily to hedge against future commitments. The Company does not engage in foreign currency speculation. Gains and losses on these hedging instruments that are designated and effective as hedges in firm commitments are deferred and recognized in income in the same period as the hedge transaction. The Company may be exposed to credit losses in the event of non-performance by counterparties to these instruments. Management believes, however, the risk of incurring such losses is remote as the contracts are entered into with major financial institutions. At March 2, 1996, the Company had outstanding foreign currency forward sales and purchase contracts with banks in the amounts of $9,053,000 and $10,990,000, respectively, as compared to $10,044,000 and $7,968,000 as of February 25, 1995. These contracts have various maturity dates ranging up to twelve months from March 2, 1996, with over 70% of the contracts maturing within six months. The recognition of net gains, which amounted to $230,000 using spot rates as of year end, is deferred until the period of the hedge transaction. 30 - -------------------------------------------------------------------------------- Report of Independent Public Accountants - -------------------------------------------------------------------------------- Board of Directors and Stockholders The Topps Company, Inc.: We have audited the accompanying consolidated balance sheets of The Topps Company, Inc., and Subsidiaries as of March 2, 1996 and February 25, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 2, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material aspects, the financial position of The Topps Company, Inc. and Subsidiaries as of March 2, 1996 and February 25, 1995 and the results of their operations and cash flows for each of the three years in the period ended March 2, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York March 27, 1996 - -------------------------------------------------------------------------------- Market and Dividend Information - -------------------------------------------------------------------------------- The Company's Common Stock is traded on the NASDAQ National Market under the symbol TOPP. The following table sets forth, for the periods indicated, the high and low sales price for the Common Stock during the last two fiscal years as reported on the NASDAQ National Market. As of April 23, 1996, there were approximately 6,197 holders of record. Fiscal Year Ended Fiscal Year Ended March 2, 1996 February 25, 1995 - -------------------------------------------------------------------------------- Dividends High Price Low Price High Price Low Price Paid - -------------------------------------------------------------------------------- First quarter $ 6.875 $ 5.000 $ 7.625 $ 6.125 $ 0.07 - -------------------------------------------------------------------------------- Second quarter 6.500 5.625 8.000 5.750 0.07 - -------------------------------------------------------------------------------- Third quarter 7.125 4.875 7.125 5.500 0.07 - -------------------------------------------------------------------------------- Fourth quarter 6.000 4.250 6.375 4.125 - - -------------------------------------------------------------------------------- The Company's Credit Agreement currently prohibits the payment of dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Notes to Consolidated Financial Statements - Note 7." 31 - -------------------------------------------------------------------------------- Selected Consolidated Financial Data - -------------------------------------------------------------------------------- (In thousands of dollars, except share data)
1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------- OPERATING DATA: Net sales $ 265,495 $ 265,386 $ 268,047 $ 263,158 $ 303,187 - ----------------------------------------------------------------------------------------------------------------- Gross profit on sales 80,615 81,957 93,482 78,652 137,621 - ----------------------------------------------------------------------------------------------------------------- Selling, general and administrative expenses 67,173 57,990 50,870 50,549 52,100 - ----------------------------------------------------------------------------------------------------------------- Income from operations 16,571 26,924 45,930 32,800 91,162 - ----------------------------------------------------------------------------------------------------------------- Interest income (expense), net (1,447) 461 157 (13) (1,861) - ----------------------------------------------------------------------------------------------------------------- Net income 8,394 15,747 26,592 19,037 54,474 - ----------------------------------------------------------------------------------------------------------------- Per share: Income from operations $ 0.35 $ 0.57 $ 0.98 $ 0.69 $ 1.93 - ----------------------------------------------------------------------------------------------------------------- Net income 0.18 0.33 0.57 0.40 1.15 - ----------------------------------------------------------------------------------------------------------------- Cash dividends -- 0.21 0.28 0.28 0.24 - ----------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding 47,047,251 47,039,287 47,030,902 47,382,428 47,324,574 - ----------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Cash and equivalents $ 24,154 $ 17,785 $ 27,737 $ 13,837 $ 10,851 - ----------------------------------------------------------------------------------------------------------------- Working capital 31,278 30,917 23,624 9,922 8,175 - ----------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 31,610 31,964 29,479 28,155 27,212 - ----------------------------------------------------------------------------------------------------------------- Long-term debt, less current portion 37,500 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- Total assets 217,127 136,324 141,677 142,051 143,090 - ----------------------------------------------------------------------------------------------------------------- Stockholders' equity $ 81,850 $ 73,869 $ 66,955 $ 54,366 $ 55,132 - -----------------------------------------------------------------------------------------------------------------
Amounts in 1996 include the impact of Merlin from the date of acquisition on July 6, 1995. 32 - -------------------------------------------------------------------------------- DIRECTORS - -------------------------------------------------------------------------------- Arthur T. Shorin Chairman of the Board of Directors Allan A. Feder Independent Business Consultant President and Chief Executive Officer, Vitarroz Corporation Wm. Brian Little Private Investor Jack H. Nusbaum Senior Partner and Chairman Willkie Farr & Gallagher Seymour P. Berger * Vice President - Sports and Licensing Stephen D. Greenberg * President, Classic Sports Network, Inc. John J. Langdon President and Chief Operating Officer David Mauer Chief Executive Officer, Riddell Sports, Inc. Stanley Tulchin * Chairman, Stanley Tulchin Associates, Inc. * Nominated to stand for re-election to the Company's Board of Directors at the 1996 Annual Meeting of Stockholders. - -------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------- Arthur T. Shorin Chairman and Chief Executive Officer Seymour P. Berger Vice President - Sports and Licensing Michael P. Clancy Vice President Managing Director of Topps Ireland Limited Michael J. Drewniak Vice President - Manufacturing Leon J. Gutmann Assistant Treasurer and Assistant Secretary Steven Kosoff Vice President - Marketing - New Products John Perillo Vice President - Operations Scott Silverstein Vice President - General Counsel John J. Langdon President and Chief Operating Officer Ronald L. Boyum Vice President - Marketing and Sales Ira Friedman Vice President Publishing and New Product Development Jeffrey M. Goodman Vice President - Sales Catherine K. Jessup Vice President - Chief Financial Officer William G. O'Connor Vice President - Administration Thomas R. Pisano Vice President - International Peter Warsop Managing Director Merlin Publishing International Limited - -------------------------------------------------------------------------------- STOCKHOLDER AND OTHER INFORMATION Annual Meeting Wednesday, June 26, 1996, 10:30 A.M. Chase Manhattan Bank 1 Chase Manhattan Plaza New York, NY 10081 Corporate Counsel Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, NY 10022 Registrar and Transfer Agent Chemical Mellon Shareholder Services, L.L.C. 450 West 33rd Street New York, NY 10001 (800) 851-9677 Form 10-K -- A copy of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission will be available to stockholders of record upon written request to the Assistant Treasurer. - -------------------------------------------------------------------------------- Trademarks of The Topps Company, Inc. appearing in this report: BAZOOKA, BAZOOKA JOE, MARS ATTACKS, PUSH POP, RING POP, ROLLER POP, TONGUE SUCKER, TOPPS, TOPPS BABY WILD ANIMALS, TOPPS FINEST AND TOPPS GALLERY. 33 [LOGO} TOPPS [GRAPHIC] [LOGO} TOPPS THE TOPPS COMPANY, INC. ONE WHITEHALL STREET NEW YORK, NY 10004-2109 (212) 375-0300 o FAX:(212) 376-0573 EX-21 8 SIGNIFICANT SUBSIDIARIES SIGNIFICANT SUBSIDIARIES OF THE COMPANY (100% WHOLLY-OWNED) NAME OF SUBSIDIARY STATE OF INCORPORATION ------------------ ---------------------- Topps Ireland Limited Ireland Merlin Publishing International PLC United Kingdom EX-23 9 AUDITOR'S CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Topps Company, Inc.: We hereby consent to the incorporation by reference in Registration Statement No. 33-17096 of The Topps Company, Inc. and Subsidiaries on Form S-8 of our report dated March 27, 1996, appearing in this Annual Report on Form 10-K of The Topps Company, Inc. and Subsidiaries for the year ended March 2, 1996. Deloitte & Touche LLP New York, New York May 24, 1996 EX-27 10 FDS TOPPS FORM 10-Q
5 1,000 12-MOS MAR-02-1996 MAR-02-1996 24,154 0 43,357 888 27,887 112,271 53,232 21,622 217,127 80,993 37,500 0 0 475 81,375 217,127 265,495 268,624 184,880 252,053 0 0 2,387 15,124 6,730 8,394 0 0 0 8,394 .18 .18
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